How to Obtain a Line of Credit for Real Estate

Having a line of credit for real estate can help improve cash flow and help you gain access to various financial options, sometimes in a matter of days. This option can enable you to grab up a great investment deal or have access to funding for that fix and flip.

An investor line of credit basically works like a credit card whereas interest accrues on the money used, while allowing flexible repayment terms.

Home Equity Line of Credit

A home equity line of credit (HELOC) is available to homeowners; with the revolving credit based on the amount of equity you have in your primary home, which will be used for collateral. The HELOC enables you to take care of financial responsibilities ranging from debt consolidation, college tuition, home renovations, or investing in more real estate.

Single Investment Property Line of Credit

This option is based on credit score, payment history, and requires a debt to income ratio of no more than 45%. The proposed property must also qualify and may either be a single family home or a multifamily property that has between 1 and 5 units. $25,000 is the standard minimum LOC. Additionally, up to 5% closing costs will apply, as well as a $75 annual service fee. This line of credit offers low monthly payments with repayment terms of 20 to 30 years.

Portfolio Investment Line of Credit

Investors with an expansive net worth and more than $1 million equity in a portfolio of properties are eligible for the portfolio investment LOC. Approval is based on credit score, ample assets, and a history of successful property investments. LOC amounts range between $1,000,000 and $50,000,000 with repayment terms being between 18 and 24 months. Interest applies but no fees are incurred. Qualifying properties are single-family homes or multifamily properties that offer between 1 and 20 units.

Obtaining a Line of Credit

It is important to decide which LOC will help you reach your real estate goals. For the home equity and single investment property options, most local banks, credit unions, private and online lenders will help you obtain the financing you need. However, there are limited financial organizations that offer the substantial portfolio investment lines of credit.

Prior to inquiring about a line of credit, know your financial status including your credit score, debt to income ratio, income history, tax returns, and bank statements. You’ll also need documentation on the related property including appraisals, proof of ownership, and applicable lienholder certification.

Bottom Line

LOCs offer flexible terms depending on the financial institution you use. A real estate line of credit makes it possible to purchase properties, complete renovations and upgrades, and even pay off larger debts. Interest rates are low, you’ll have improved cash flow, and there are also tax benefits. Bottom line, it is a very useful tool for real estate owners and investors.

Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses from 2007 up to the present of experience in real estate investing and property management in the Memphis and Nashville markets.