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What Loan Type is Best for an Investment Property in Texas?

Texas House Flipping Series
1. Texas Home Flippers, Austin is the Hottest Market in 2021
2. 2021 Sees Surge in Opportunity for Flipping Houses in Dallas
3. Don’t Sleep on Flipping Houses in San Antonio Texas
4. Why Everyone is Flipping Houses in Texas
5. What Loan Type is Best for an Investment Property in Texas?

When investing in Texas real estate, you have many different loan types to choose from. The type of property you are looking for and your plans on how it will make you money will most likely determine which one is best for your investment. Some people want their investment property to provide monthly cash flow, while others wish to renovate a property and flip it for a profit quickly. This blog post will cover the financing options available when purchasing an investment property in Texas.

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Types of Loans for Investment Properties

Conventional Mortgage

The first option is a conventional mortgage, also known as a residential mortgage or home mortgage. These loans are backed by Fannie Mae or Freddie Mac and offer lower rates than other types of investment property loans. For real estate investors who plan to buy and hold their property for many years, a conventional mortgage is a smart route to take. In this scenario, the investor will need a 15-25% down payment. Once the property is purchased and in good condition, the investor will rent it to tenants to cover the monthly mortgage payments.

Buying and holding is a strategy that benefits investors by leveraging two key aspects of real estate: tenants paying the mortgage and increasing the value of the property over time. Additionally, while the tenants are paying off the mortgage, many investors will charge more in rent to receive a positive monthly cash flow.

When it comes to purchasing an investment property, time is almost always a factor. It usually takes months or even years to find the right investment property, put together a good offer package, and wait for it all to be approved by traditional mortgage lenders. The process can be long and arduous. However, it is only a tiny step in the overall life of the loan.

DSCR Loan

A DSCR loan is an alternative to a conventional mortgage loan that is much better suited for long-term real estate investors. This type of loan offers lengthy terms, but the loan is based on how much the property can command in rent rather than the income of the borrower. For buy-and-hold investors, this means that they can purchase a real estate property with the intention to rent it out. The DSCR loan offers advantageous loan rates and terms for long-term real estate investors.

Hard Money Loan

Next, we’ll explore hard money loans, which can be used for commercial and residential properties but typically go up to $2 million in Texas, with interest rates starting at 8.5%. A hard money loan works well if you’re not planning on holding on to the property for long, and in fact, it is a favorite among well-seasoned house flippers.

A hard money loan is backed by the value of the property being purchased rather than the purchaser’s credit and income. This makes sense since the loan acts like a bridge that provides the purchaser some time and cash to renovate the property and sell it at a higher value. There are many advantages for house flippers to use a hard money loan rather than a traditional mortgage when flipping houses. First, you can get a hard money loan in Texas with concise terms, the most extended term available being 12 months. With short loan terms, the time to close is expedited because there is less underwriting involved since debt ratios and income levels are not a factor in approvals.

Hard money loans are great for individuals looking to profit on the Texas real estate market quickly. However, there are a few things to look out for when using Texas hard money loans. First of all, it is important that you read the loan agreement entirely and ask any questions that come up before signing on the dotted line. A trusted hard money lender like Park Place Finance will answer all of your questions and ensure that you feel comfortable and informed when securing financing. Don’t let funding be a barrier that prevents you from capitalizing on the booming Texas real estate market.

Curious About Investment Property Loans Rates?

Contact us at Park Place Finance, and we’ll provide you with phenomenal rates and speedy closing times. We understand that Texas real estate investors are on the go and need funding quickly. To speak with a loan specialist today, call us at (866) 407-1599 or visit our hard money loans page to learn more about this investment property financing option!

Looking for a Hard Money Loan in Texas? Contact Us Today

Justin Hubbert

Justin began his lending career working for a Lending Tree Affiliate and Chase Bank for several years before opening Park Place Finance in Austin, Texas in 2007. With expertise in condo project approvals, working with self-employed borrowers, and Texas Cash Out loan regulations, he has originated over $110 million in Conventional, FHA, and jumbo residential loans.

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