Are you looking to finance real estate endeavors but you don't have a ton of capital? Read our guide to learn just what you can do today.

Is finding real estate for your home or business location your dream?

A Harvard study found out that almost 40 million Americans live in housing units they can’t afford or buy. Most new homeowners get their properties because they already have the funds to buy them.

Even if you only have small capital, you need not worry. You can still find a few ways to catch up and get your desired property. Keep reading below to learn how to finance real estate projects.

1. Get the Conventional Bank Loan

Let’s begin with one of the most common ways to finance real estate. It’s to get a conventional bank loan. When you borrow from a bank, you run the risk of paying getting bigger interest rates.

However, the benefit is that you can pay the 20% down payment necessary to buy real estate properties. 

Some mortgages will ask to give more than 20% for the down payment, going up to as much as 25% to 30%. Often, this will depend on the lender’s policies. Borrowing from mortgage lenders is a good choice if you only need to buy a house to use as your new home.

2. Finance Real Estate With a Portfolio Lender 

Do you plan to buy a handful of properties instead? Portfolio lending is a good choice for you. A portfolio loan has more flexible terms and qualifying standards.

Often, banks and credit unions become portfolio lenders. The money they lend will come from their firm’s funds. Portfolio loans are also great choices if you’re not afraid of entering a long-term loan. 

You won’t see many banks and lending institutions advertising their portfolio lending. If you want to find a portfolio lender, you’d have to connect with other investors or get referrals.

If you want to know if a portfolio loan is a good choice for your real estate plans, talk to the professionals at mbpartners.com. They have the experience and expertise to give sound advice for your real estate endeavor.

3. Look for a Way to Get Real Estate Crowdfunding

Do you want to avoid debt at all costs, especially for real estate? If you don’t want to sink further into debt, it’s understandable. After all, the average mortgage balances grew for the younger generations.

For example, people aged 18 to 23 have a 19% increase in mortgage debt from 2019 to 2020. From $142,600, Generation Z’s mortgage balance went up to $169,470. Meanwhile, those 75 and older only saw a 1% increase in their mortgage balance.

One of the most innovative capital solutions for real estate acquisitions is to use a crowdfunding strategy. 

As the term goes, crowdfunding is when you raise money by asking for small amounts from a pool of investors instead of one big capital. Websites like GoFundMe and Kickstarter popularized crowdfunding practices for real estate endeavors. 

To launch a successful real estate crowdfunding campaign, you must have a strong pitch and a reliable network. Present your pitch to the pool of investors and ensure you make a strong impression. If the lenders or investors liked your pitch, they’ll give small amounts.

Some may even refer you to others who will support your cause or goals. The drawback of using a crowdfunding solution is that it can take up a lot of your time and dedication. The good news is that the investors who supported you may continue to support your future projects, as well.

4. Find Ways to Use an FHA Investment Loan

The Federal Housing Administration is a United States program aiming to insure mortgages. Contrary to popular belief, the FHA doesn’t lend money to those who need it. Rather, they only provide insurance to the loan against loss. 

Only certain lenders have the FHA’s approval to offer these loans. You may also notice that FHA loans are for those who don’t have perfect or high credit scores. It also applies to homeowners with foreclosed homes, as well as those who sold their houses before.

FHA loans are friendlier in that they have a lower down payment condition at only 3.5%. It allows the FHA borrower to get their desired property sooner. However, it also means that the borrower pays a “private mortgage insurance” (PMI).

The PMI protects the lender since you must pay it when the down payment for your property is under 20%. As a result, the extra PMI payment is more likely to make your monthly dues somewhat higher. It’s because you’ll pay an upfront mortgage and annual mortgage insurance premium. 

5. Don’t Forget About Self-Directed Accounts 

A lot of people underuse and overlook this type of loan. The catch is that it’s better if you’re in your retirement age.

Did you know that you can use your 401K on real estate investment projects? It also applies to your individual retirement account (IRA).

The Internal Revenue Service allows account holders to self-direct their savings. When you convert them into real estate investments, you’ll avoid withdrawal penalties. A custodian must hold your account when it’s already self-directed. 

Check with the IRS if you can self-direct your account. If you can, use the funds in your retirement accounts to buy the real estate property. The catch here is that any profit must go back to the original account.

You can also let the profits grow tax-deferred. When the money grows this way, the resulting tax shelter can increase your profits. 

Support Your Dream of Buying Real Estate Properties Today!

With that, you now know how to finance real estate projects, even with only small capital. Never let financial constraints hinder you from financing your real estate endeavors. Regardless we hope you enjoyed reading and learning from this guide on finding funding for real estate.

Do you want to keep learning about handling money or real estate? If so, check out our other helpful guides now. We have a trove of useful information to help with various ventures.