Don’t Pass on a Real Estate Transaction Because You Don’t Have the Cash
A playwright named Titus Maccius Plautus from the 200s–100s BC is credited with saying, “You have to spend money to make money” and so that concept has been around for a long time. If you’re a real estate investor and you have cash on hand to make a move on buying a new property that’s good, but most often it will be necessary to borrow. The key is to borrow efficiently and sometimes carrying a certain amount of debt is actually advantageous.
Good Debt vs. Bad Debt
US Bank says: “Whether a given debt is good or bad depends on several factors. There’s the interest rate and the amount of time it will take you to pay back the loan. Then there’s the matter of what you’re borrowing the money for. Equally important to consider is your unique tolerance for debt.
By and large, good debt is borrowing that helps you build long-term wealth. Bad debt, on the other hand, can harm your credit and deplete your finances. The difference comes down to two factors: risk and cost.”
If you’re not sure about current or future debt, Starr Mortgage professionals can assess your financial situation and guide you to the best loan program for your goals.
No Income Verification Loans
Many people earn income from working for a company and at the end of the year, their W-2 is all the documentation they need to show proof to a lender. Forbes Magazine reported that 30% of Americans have some kind of self-employment to thank for at least part of their income, and those people have other types of documentation, and some of them are sometimes hard to get. Contracts, leases, receipts, and invoices are just some of the tangible paperwork that show sources of income, and many get lost over time.
These borrowers should look into one of the no-income-verification loan programs available.
Interest-Only Loans
Traditional real estate loans are known as fully-amortizing loans, where each payment includes a portion of the interest due as well as a portion to reduce the principal balance. Often a borrower’s primary goal is to keep payments low and not to pay down the principal. Interest-only loans are perfect for these people and they can be very useful depending on the circumstances.
How do Interest-Only Loans Work?
- For a period of time (typically three to 10 years), you’ll make payments on the mortgage’s interest only. Your payments won’t reduce the principal and you won’t build equity in your home.
- Following the initial period, the loan will convert to an amortization schedule. For the remainder of the term, you’ll make larger payments toward the principal and interest. Alternatively, you may have a balloon payment due at this time.
Interest-only loans are often perfect for borrowers who are only going to live in a property for a short period of time or for someone who is going to do renovations to the property and then sells it in 6 months to one year.
Step one in any real estate transaction should be to arrange a consultation with a mortgage expert. Starr Mortgage helps people with a wide range of loan programs in New York, New Jersey, and Florida and we’re available 7 days per week at (845) 348-3172.
