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Real Estate Loan Myths Debunked: Setting the Record Straight

Real Estate Loan Myths Debunked: Setting the Record Straight

You’re about to embark on your real estate investment journey, and you’re bombarded with a barrage of myths, misconceptions, and misinformation surrounding real estate loans. With the whirlwind of conflicting advice and opinions swirling around you, how do you separate fact from fiction? We’ll show you the way.

In this blog, we’ll debunk some of the most common real estate loan myths. Tag along!

Myth 1: You Need Perfect Credit to Get a Real Estate Loan

Many aspiring investors believe perfect credit is a prerequisite for obtaining a real estate loan. While a high credit score can increase your chances of securing a loan with great terms, it’s not the be-all and end-all. There are plenty of alternative lending options available for investors with less-than-perfect credit, including hard money loans by private lenders like InstaLend.

We focus on the property’s value and the potential return on investment rather than solely relying on the borrower’s credit score. This makes it much, much easier for investors with a less-than-stellar credit history to secure financing.

Myth 2: All Real Estate Loans Require a Large Down Payment

a real estate investor making a large down payment for a loan

Another common real estate loan myth is that you need a hefty down payment to secure a real estate loan. While traditional lenders may require a significant down payment, alternative lending options cater to investors with limited capital.

For instance, hard money lenders typically require a smaller down payment, as they primarily focus on the property’s value and potential profitability. Additionally, some private lenders offer loan programs with lower down payment requirements, making it easier for investors to get started in the real estate market.

Myth 3: Real Estate Loans Are Only for Experienced Investors

The belief that real estate loans are exclusively reserved for seasoned investors is a prevalent myth that can deter beginners from entering the market. The reality, however, is very different.

Many lenders, including private lending companies like InstaLend, offer loan programs specifically designed for first-time investors or those with limited experience. These lenders understand the unique challenges and requirements of budding investors and provide tailored solutions, guidance, and support to help them succeed in the world of real estate investing.

Myth 4: You Can’t Refinance Investment Properties

Some investors mistakenly believe that refinancing is off-limits when it comes to investment properties. The truth is that refinancing an investment property is not only possible, but it can also be a clever move for investors looking to optimize their portfolio.

By refinancing, you can possibly lower your interest rate, extend your loan term, or access equity to finance additional investments. Many private lenders and traditional lending institutions offer refinancing options for investment properties.

Myth 5: Fix and Flip Loans Are Too Expensive and Risky

a concept illustration of cash, a credit card, and a man holding a stopwatch

Fix and flip loans have gained a somewhat negative reputation as being excessively expensive and risky. While these loans often have higher interest rates compared to traditional loans, they serve a specific purpose in the world of real estate investing.

Fix and flip loans are short-term loans used to finance property renovations and quick resales. They equip investors with the capital they need to execute their investment strategy. By working with a reputable lender like InstaLend, investors can secure fix and flip loans with competitive rates and terms, mitigating risk and maximizing their return on investment.

Recommended Read: The Cost of Fixing and Flipping a House

Myth 6: Banks Are the Only Option for Real Estate Loans

Many investors operate under the assumption that banks are the only viable option for securing real estate loans. While banks can be a reliable source of financing for certain investors, they’re far from the only option.

In fact, there are numerous alternative lending options available for real estate investors, including private lenders. These alternative lenders often provide more flexible loan terms, faster approval times, and tailored solutions to suit the unique needs of real estate investors.

By exploring these options, investors can find the best financing solution for their specific investment strategy and goals.

Myth 7: Loan Pre-Approval Guarantees Loan Approval

It’s a common misconception that obtaining pre-approval for a real estate loan guarantees that you’ll receive final approval for the loan. While pre-approval can be a strong indicator that a lender is likely to approve your loan application, it’s not a binding commitment.

Lenders still need to conduct a thorough review of the property and verify your financial information before granting final approval. To improve your chances of securing loan approval, provide accurate and complete information during the pre-approval and underwriting processes, and work with a reputable lender who understands your investment objectives.

Recommended Read: The Smart Way to Diversify Your Real Estate Investment Portfolio

Myth 8: Real Estate Loans Take Too Long to Close

Many investors are deterred by the assumption that real estate loans take too long to close, potentially causing them to miss out on lucrative investment opportunities. While some traditional lenders may have lengthy approval and closing processes, alternative lenders like InstaLend offer expedited loan processing times.

By streamlining their underwriting and approval processes, these lenders help investors close loans quickly, often within a week of receiving the appraisal report. This enables investors to act fast and seize opportunities in the fast-paced world of real estate investing.

Myth 9: You Can’t Get a Real Estate Loan If You Don’t Have a Steady Income

a real estate investor terminated

A common misconception among potential real estate investors is that a steady income is required to secure a real estate loan. While traditional lenders often prioritize income verification, many alternative lenders focus more on the value of the property and the potential return on investment.

These lenders provide asset-based loans, which means that the loan is secured by the property, not the borrower’s income. As a result, investors with irregular or fluctuating income can still access financing for their real estate projects through these alternative lending options.

Myth 10: You Must Use the Same Lender for All Your Real Estate Investments

Some investors mistakenly believe that they must use the same lender for all their real estate investments, whether out of loyalty or for the sake of convenience. In reality, there’s no rule dictating that you must stick to the same lender for every investment. In fact, you should explore different lending options to find the most suitable financing solutions for each project.

Different lenders may offer different loan products, interest rates, and terms, which could better align with your specific investment goals and strategies. By diversifying your lending sources, you can potentially maximize financial flexibility and optimize your real estate investment portfolio.

Recommended Read: 8 Real Estate Investment Goals You Should Set in 2023

Start Working with InstaLend Today!

If you’re considering taking out a real estate loan, InstaLend should be your first stop.

We provide a wide range of loans, including fix and flip loans, single-family rental loans, new construction loans, multi-family bridge loans, multi-family term loans, and more.

Draw a request today!

  • May 12, 2023
  • 6 min read
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