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Types of Commercial Loans It’s been said that a perfect investment property requires the perfect financing solution. So with this perfect financing, one can purchase the investment property that will help generate steady income while you are paying the low rates and favorable terms of your loan provider. There are inherent benefits and disadvantages when you want to take advantage of the current real estate boom and you want to borrow money to invest in. So whether you would go to a traditional institution like a bank or an alternative solution like a private lender, the ability to borrow rests on the potential property income and a borrower’s credit worthiness. Gaining money from these investments is possible. And all the commercial borrower needs to do is to factor all of the costs into the deal and cover them with a nice profit to justify their risk. In a traditional bank convention however, their guideline is to lower a borrower’s risk of default, and therefore they can offer the lowest mortgage rates and extends long-term loan on the market. This however requires rigid down payment, income verification and credit score requirements. However, the approval process take time and the reason why there can be a negative effect when you are dealing with the property owner.
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It is different with private financiers because they also have interest on property investment unlike banks which are merely interested in monetary interest rates since there are not into the real estate trade. With private lenders however, a lender must show the property’s income potential and not so much on the borrower’s credit worthiness. The focus of private lenders is the property itself and this is the reason why sometimes borrowers need to cross-collateralize depending on the loan-to-value ration in order to obtain the full loan that he needs. What is characteristic of private lender loans is that their interest rates are high, the terms are short, and the property is expected to have a high return on investment. But they do thrive well because they set no lending requirements where the two parties can come to their own terms. With private lenders, you can secure a quick loan with less complex and less time consuming loan qualification process, and the fees they charge are less than what you pay with bank loans.
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Another way to get financing is through transaction function which is a specialty lending niche that is becoming popular in the fix and flip industry. Here an experienced fix-and-flip investor will buy cheap real estate and use the poor condition of the property by rehabilitating them to reach its highest potential market value. This type of loan is usually short term and arranged according to fee charges.