Category: Applying for a Loan

Investment real estate is a strategic way to build your long-term financial portfolio. If you’re just getting started on your investment journey, determining how you should finance your prospective purchase is crucial. There are several options available to you, with each presenting advantages to different situations. Today, we break down the loan options for investment properties in Philadelphia.

Distinguishing Property Types:

To understand loan options, we first must understand how residential housing is categorized. There are three primary categories

Primary Residence: This is the residence where you primarily live. For a home to be considered your primary residence, you don’t need to live there year-round. However, you can only have one property considered your primary residence at one time, and it should be for all intents and purposes, your main home.

Second Home: If you own another property that you occupy for parts of the year, it is considered your second home. To clarify, you can have mutiple second homes, as long as you occupy them for some portion of the calendar year each year. Common examples of second homes include seasonal homes and vacation homes.

Investment Properties: Finally, we come to investment properties. These are residences that you don’t ever occupy and exist solely as a way to generate income. There are ways to utilize a primary residence as an investment property, such as in the case of house hacking, but usually, your investment property will be entirely separate from your residence.

The Loan Options Available for Investment Properties in Philadelphia

When it comes to loans for investment properties, there are a few different options you have at your disposal, each fitting some circumstances better than others. Let’s take a look at those.

Traditional Bank Loan

If you’re already a homeowner, this is the option you’re probably most familiar with. Like financing your primary residence, you have the option of securing a traditional bank loan for your investment properties in Philadelphia. This is a straightforward option and requires much of the same financial information you had to provide for a home loan, including credit score, debt-to-income, W2s, tax records, etc. Finding the right loan for an investment property can be challenging, which is why working with a qualified mortgage broker may be the right step for you. Brokers like those at the Federal Hill Mortgage team can help streamline the process and have existing relationships with lenders that allow us to help negotiate better interest rates and mortgage terms. If you are looking to purchase an investment property, have strong financial standing, and are not looking for a fixer-upper, a traditional bank loan is likely the best option for you

Fix-and-Flip Loan

If you like the idea of property investment as a building block for your financial future, but don’t want to hassle with landlord duties or property management companies, fixing and flipping may be an option worth exploring. This is the process of purchasing outdated, damaged, or even vacant properties, remodeling them, and selling at a profit. If you have construction experience and can handle the remodel yourself, this is an even more effective method. If you are hiring a remodeling company, ensure you budget carefully to guarantee that the remodel won’t cost more than you can earn by selling the property.

If you want to purchase a property but aren’t sure if you can finance the remodel, a fix-and-flip loan is a great option to explore. A fix-and-flip is a short-term, hard money loan meant to help you finance the remodel and flip the property for a greater profit. A hard money loan essentially just means that the loan is backed by the property itself. There is more flexibility within these loans than traditional bank loans, mainly because lenders may be more focused on the potential profitability of the property than solely on your financial standing. Though, those items will still be of interest. Lenders estimate the after-repair value (ARV) to determine whether or not the property is viable for a loan. The biggest downside of fix-and-flip loans is that interest rates are often far higher than those of conventional loans.

Accessing Home Equity

You’ve probably heard that tapping home equity isn’t an advisable strategy outside of a few scenarios, including substantial home upgrades, and business investments. There are two ways to access your home equity to purchase an investment property, a cash-out refinance or a home equity loan. You may be able to access up to 80% of your home’s value to use towards the purchase of investment properties in Philadelphia.

With a home equity loan, your loan is secured against the equity of your home. You borrow a lump sum, which you repay back at a fixed rate. A home equity line of credit is similar, but you have flexibility in how you access the money. Instead of being given the lump sum all at once, you can choose amounts to draw monthly. If you’re still paying off your original mortgage, both home equity loans and home equity lines of credit act as second mortgages and will be paid on top of your existing mortgage rates.

A cash-out refinance on the other hand acts as an entirely new mortgage that replaces your current mortgage with a larger amount. The difference between your current mortgage and the refinanced mortgage is the cash-out that you receive. Cash-out refinances typically come with lower interest rates than HELOCs or home equity loans.

These are just some of the options at your disposal when you look to finance investment properties in Philadelphia. Navigating all of the options can be challenging when first trying to dip your feet into the investment realty market. Having a professional mortgage brokerage and lending team at your back can make all the difference. Federal Hill Mortgage is made up of the number 1 ranked loan originators on the East Coast. If you’re ready, apply today to get started.

Your credit score is an essential piece of your overall financial health and an important factor in the mortgage process. Mortgage lenders use your credit score to assess your financial responsibility, including how diligent you handle loans that have been granted to you. Borrowers with higher credit scores have a better chance of getting a favorable interest rate from lenders. If your credit score is lacking, here are some steps you can take to raise your credit score in Virginia and gain access to a better mortgage rate.

Always Review Your Annual Credit Reports

You may understand that your score is low, but without proper monitoring, you may be at a loss for exactly why it is that way. What some people don’t know is that you’re entitled to an annual report from the three major credit reporting institutions, TransUnion, Equifax, and Experian. Simply follow this link to gain access to the portal for your credit reports. It’s important to gather a report from each institution, as the information they have available may differ depending on what sources report to them.

Avoid New Loans

If your ultimate goal is to improve your credit to achieve a favorable mortgage rate, it’s advisable that you don’t take out any new loans for at least a year prior to applying for your mortgage. A new car can wait when you’re ready to get into your dream home.

Determine Your Outstanding Debt

Your outstanding debt is a significant factor in your credit score and is also information a lender will inquire about when you apply for a mortgage. Take stock of all your outstanding debt, whether it be credit card debt, medical debt, student loans, car loans, or any other money you’ve borrowed. Organize the information by loans that you can most feasibly pay off and begin formulating a manageable strategy to tackle that debt. This is a crucial step to increasing your credit score in Virginia.

Change Your Payment Strategy

For many types of debt, there are tools you can use to make the process of paying it off easier. Autopay for credit cards is a smart option that ensures you never miss a payment and aren’t assessed a penalty on your credit score. Paying twice a month can help you pay off your principal further and avoid accruing interest. For larger debts such as student loans, determine if there is a payment plan option that can help you make consistent payments and chip away at the overall debt.

Ask for Higher Limits (If You Can Avoid Spending)

Raising the limits on your credit cards may sound counterintuitive to increasing your credit score, but it’s actually a sneaky strategy that can be very useful. When you raise the limit on your credit card, you lower your overall credit utilization ratio, even if your spending doesn’t change. The credit utilization ratio is an important factor that can lower your credit score without you even realizing it. However, for this strategy to work, you can’t increase your spending to correlate with the new limit. So keep your spending where it is, and reap the benefits for your credit score.

There’s more to the mortgage process than just attaining a good credit score in Virginia. For all of your other mortgage needs, the expert team at Federal Hill Mortgage is here to help. As the top-ranked mortgage brokers and lenders on the East Coast, our team can help make your dream home a reality. To get started, apply now.