Any property that is not occupied for commercial purposes and attained with the objective of residing is what is called a residential property. Many loan options are made available by national or private banks and other financial institutions to facilitate housing facilities. Therefore it is necessary that the various options are reviewed to meet individual preferences. Various factors such as loan repayment period, processing fee, interest rate, etc. are considered before deciding on the source. i.e banking and non-banking institutes. Thus it may seem that the funding sources have a similar surface however they may be different based on the regulatory system and the funds available to them.
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Which are the best loan for developing a residential property?
The best loan for developing a residential property may depend on whether any construction works are done on the land or not. The banks grant home loans or land loan based on these factors.
- Land loan: Land loans are provided to those that are interested in purchasing a residential property. The interest rates on a land loan are similar to that of a home loan. In order to be eligible for a land loan, it is necessary that the plot that you want to acquire is within the limits of a municipality or corporation. Land loans are provided only for residential property. Loan to value is the stipulated amount that a person will receive against a property. In cases of a land loan, it is 70% of the plot’s value. Most of the banks also have a period fixed for the construction of houses while acquiring a land loan.
- Home loan: A home loan is a loan provided by banks to finance an already constructed, under construction or likely to begin construction soon properties. Home loan is available on different properties, unlike a land loan. The loan to value for a home loan is 75-80% and in some cases, it is 90% of the price of the plot. According to section 80C of the Income Tax Act, a person is eligible for deductions on the principal repaid up to Rs.1.5 lakhs and interest reductions up to Rs. 2 lakh per annum according to section 24 of the Act.
A person can avail of a land loan for a maximum period of 15 years and a home loan for a period of 30 years. However certain non-banking financial institutions provide land loans for a period of 20 years as well. Land loans also have an upper limit unlike a home loan with respect to the bank from which the loan is acquired. Land loans are generally treated as a part of home loan and their due diligence process, EMI options, documentation, need for co-applicants, rate of interest, etc are the same for both.
Can I get a loan for a real estate investment?
The direct answer to this question is yes. Taking a loan for a real estate investment may vary based on various factors. A bad loan taken can affect the future profitability of the investment.
- The main factors on which the loan depends are the credit score and history, the assets and reserves under your possession, the down payment required by you, etc. However, it can be easier to acquire loans for a primary residential property than an investment property as the reserve requirements are flexible and their interest rates are generally lower.
- A conventional mortgage is the most common type of loan and is provided after analyzing your credit scores and credit history.
- Private money loans are acquired on the basis of a promissory note or a mortgage of income property. On delay or default the moneylender can foreclose the property. However, there are no strict rules applicable in this type of loan.
What type of loan is best for an investment property?
As mentioned above, a conventional mortgage is the typical form of loan availed for investing in investment property. 620 is the typical score that is required while 740 is the rate required to avail better interest rates. The ability of the person to afford his current mortgage and the monthly loan payment of the property is also important.
However, you can also avail loans from commercial lenders who grants loan on the basis of your credit score and the ability of the property to repay the loan acquired. Many investors also prefer a flip flop investment loan wherein a house is initially acquired and then renovated before its resale.
Can you get a 30-year loan for an investment property?
The answer to this question is yes. You can avail of a mortgage for a period of 30 years and is the most common way to invest. The right amount for your term will depend upon your interest rates and your monthly ability to repay the loan so acquired. A shorter-term or a high-interest rate will indicate that the amount is payable on a monthly basis. A thirty-year loan means that the monthly payment of money will be lower but the interest will be paid throughout the lifetime of the loan and can be higher.
How can I buy land with no money?
People in the present world invest in residential real estate with the intention of selling it when the value of the property appreciates as real estate is an excellent way to earn money. Having cash as a down payment has been the easiest way to start investing. However many experts have found different ways to invest wherein little or no cash is involved.
One of the best ways to invest in real estate without any down payment requirements is through seller financing whereby you offer the seller that you would make a higher monthly payment instead of a down payment. This can be done through negotiating and involving a real estate attorney who will draft an agreement to protect the interest of both parties.
You can lease the property until you have the money to buy the property. The payment can be made on the lease agreement and the amount paid can be adjusted as the purchase amount. In regards to such an agreement, it is necessary on the part of the buyer to ensure that there is a final purchase amount that is fixed and mentioned within the agreement.
Working out a trade:
Another way to invest without having any money is through working out a trade. In simple words, it can be stated as a way you give up on something valuable for an investment property. It is also necessary in this case to ensure that an attorney is present to ensure that a valuation of both the items in the agreement are made outside and compared.
Mortgage payment and other sources:
A mortgage payment is one of the most common practices wherein an offer for mortgage payments is made in exchange for the deed. Loans from financial institutions and taking out a home equity loan is also a common way to invest. You can also invest efficiently by dealing with an experienced real estate agent and engaging in co-investing.
While considering the option of taking out a loan for developing a Residential Property, it is important that you consider various factors such as the kind of property that you prefer to buy, i.e. non-constructed or constructed, constructing, or about to be constructed. It is also important that you consider the various loan options after considering your credit score and interest rates associated with your property. Real estate investment has been seen as a good means to earn money in the present scenario and it is important that you consider the different alternatives to make your investment profitable and less burdensome.