A beginning real estate investor may not have a lot of money to invest in real estate. Therefore, the investor will need to take out a loan in order to be able to purchase an investment property. Here are some types of loans that are available.

1. Conventional Loans

Conventional loans for real estate investment properties are similar to the loans that people normally take out to purchase their own homes. Usually, banks will require a 20% down payment. The interest rate will depend on the borrower’s credit rating. The investor also must have six months of cash reserves to pay the mortgage, in case unexpected expenses come up.

2. Hard Money Loans

Hard money loans are available from non-bank lenders. They are based on the value of the property rather than on the credit score of the borrower. These are short-term loans, and the interest rate is very high. These loans are usually used by property flippers, who buy property to fix up and resell in a short period of time.

3. Private Money Loans

Private money loans are loans that are provided by private individuals. These individuals could be friends, family or real estate investors. It is the borrower’s personal relationship with an individual that would convince someone to lend money to them. The property being purchased would be the collateral for the loan, so if the loan is not repaid, the property could be foreclosed on.

4. Home Equity Loans

A prospective real estate investor could take out a home equity loan on his or her own home to finance the purchase of investment real estate. This can be risky because if the borrower defaults on the loan, the bank can foreclose on the person’s own home against which the home equity loan was taken out.

5. Commercial Real Estate Loan

The above loan types can be used for investment in rental real estate. However, if an investor wants to purchase commercial real estate, he or she must obtain a commercial investment property loan. To qualify for such a loan, the investor must have a good credit score and a convincing business plan. There are various types of commercial investment property loans, depending on the type of investment property and the purpose for the loan.

If you are thinking of getting started in real estate investing, consider applying for one of the above types of loans to purchase your first investment property.