One of the most crucial factors is the exit strategy. In case you want to purchase and keep a retail center for a long period of time, then you would opt for a long term permanent loan which has a fixed interest rate. If your plan is to buy an apartment building and then flip it quickly, then you would consider loan with a low upfront cost and an interest rate that is low.
The Common Types of Mortgages
Long term loans – if you are looking for loans of up to 10 years, then you should opt for these loans. They are a fixed rate loans and they tend to have a payment penalty. The long term loans are usually amortized over a period of 30 years.
Short term loans – these loans are usually suitable for someone who wants the loan for up to 3 years. Their interest rates are lower than the long term loans. These loans are amortized for less than thirty years. If you are planning to sell the property within a very short period, then these loans will come in handy. Another reason to opt for short term loans is the fact that they will cost you less since they don’t have a prepayment penalty.
Conduit loans – the interest rate of these loans is usually very low. They have a long amortization period and are nonrecourse loans. Nonrecourse is whereby you are not legally responsible for the loan. The conduit loans are good for properties with credit tenants.
Small business administration (SBA) loans – the SBA are the ones that insure these loans. The loans are given though the SBA approved lenders. They have various favorable terms. This includes:
Low down payments
A long loan terms
Low interest rates
40 year amortizations
The sba loans are usually given to owners occupying at least 51% of the property. If you occupy at least 60% of the building, you can use it as a construction loan.
Mezzanine loans – these loans mostly go with a construction or permanent loan. This is because the lenders are not supposed to exceed 80% loan-to-value. They stack on top of other loans in order to get you up to 90% loan-to-value. This is typically done on larger projects and is not secured by a deed of trust or mortgage. They are secured by a security agreement against the ownership’s stock in the llc.
Bridge loans – these are short term financing. They are used to bridge the gap between finding permanent loans and closing the permanent financing. The bridge loans funds deals very quickly.
Stated income or no documentation loans – this loan does not require you to show any proof of your monthly income or income tax returns. You must, however, have a good credit and the property must be in good shape.
9. Hard money loans – these loans requires a hefty down payment. The interest rates are high and they require one to pay 3 to 10 points for the loan. The hard money loans don’t require good credit and they tend to close quickly. These loans can be used if you get a good deal and you need cash quickly.