Beware of Taking Loans for Homes for Sale


Beware of Taking LoansWhat’s the most perplexing and frustrating situation that a new (and sometimes, even experienced) real estate investor finds himself in? Undoubtedly, it’s getting the deals funded. Very often, it happens that when a real estate investor wishes to close a great deal but has difficulty getting the money to do it, he might inevitably resort to taking a loan. But sometimes, that could get an investor into really big trouble!

Options to remember before accepting a loan

  • Originating loans involves certain fees and costs. Make sure that the fees are not too excessive and calculate the fees once again to ensure accuracy.
  • When the investor borrows a loan with less-than-perfect credit, he needs to pay a slightly higher rate of interest but it should be always ensured that the interest rate is not too exorbitant. The investor needs to have a thorough knowledge of the current interest rates. In case the lender demands more than six percent above prime for a first mortgage loan, he should look for better options!
  • Watch out for prepayment penalties! The investor could lose a significant chunk of his profit through prepayment penalties when purchasing a home. They could be a real hassle if he wants to refinance in a year or two or if he sells the property.
  • Don’t take loans which cover insurance policies like life or medical insurance.
  • Be careful if the contract involves a binding mandatory arbitration clause. If the investor agrees to a binding arbitration clause, it means that he loses all his rights to sue for any reason if a dispute arises.
  • Be extremely vigilant and cautious if the lender wants any upfront fees or soliciting applications. It means he is a fake trying to fool others!
  • The investor must have a comprehensive, thorough knowledge on all aspects of borrowing a loan. He should be familiar with all terms and procedures related to product mortgage loans as well as payments.

Some times, it so happens that an investor purchasing homes for sale gets the deal done with disagreeable loan terms. In crucial cases, the investor would even be prepared to pay a higher rate of interest as he well knows that his real estate property will generate enough money to cover the debt. In short, before taking a loan, it is important that the investor precisely understands the terms of the loan and makes a prudent decision that will guarantee his success.

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