Different Loans for Real Estate Investing
October 30, 2008 | admin | Comments 0
These days there are so many different loans available for Property Investors. They range from ‘no doc’ to ‘low doc’, ‘interest only’, ‘principle and interest’ and ‘capitalizing the interest’ loans. It can become a little confusing to first time Property Investors – and sometimes even for the seasoned investor. Here are some simple definitions for each loan:
- No Doc Loan – means exactly what it implies; no documentation. You state what your earnings are, and due to these challenging times in the financial sector, these loans are now quite hard to get.
- Low Doc Loan – means you have limited earnings documents such as payslips, etc. These loans are most often used by self employed borrowers.
- Interest Only Loan – is used by ‘buy and hold’ Real Estate Investors. This loan reduces the repayments on the Home Loan as you pay interest only and not the actual principle off the loan.
- Principle and Interest Loan – a standard loan to buy a home with for owner occupiers. The interest is paid off with the loan. This is the basic bank loan, so if you are buying a rental property remember to ask the bank to change the loan to Interest Only.
- Capitalizing the Interest Loan – Often used by Developers and usually the interest is added at the end of a short term loan, such as a sub division, etc. These loans are scary and really not for new Property Investors. You can also secure this type of loan for a rental property and only pay a small interest, but these loans are usually over 5 years. I would not recommend using this type of loan for a rental property as you can lose a large amount of money after the 5 year term.
Happy Loan Hunting!
Filed Under: Property Investment
About the Author: 
