Personal loan vs lender

5 Replies

hey I'm thinking using a personal loan to finance my first investment about 50k Then take my down and pay for any extras. I wanted to know anyones thoughts? Thanks.

What are the terms on your personal loan?  What do you mean when you say "then take my down and pay for any extras"?  Is $50K to total amount needed to do the deal (sales price of property, closing costs, etc.).  Give a little more information about the deal and I can provide some guidance.

Originally posted by @Michael Evans :

What are the terms on your personal loan?  What do you mean when you say "then take my down and pay for any extras"?  Is $50K to total amount needed to do the deal (sales price of property, closing costs, etc.).  Give a little more information about the deal and I can provide some guidance.

Hi Michael, I am actually in the same situation as Kevin so I guess ill pick up where he left off. I came across a great deal for 50k that needs some work and is CASHONLY due to some needed repairs. They don't want any contingencies with banks. So here is my mindset, I take out a 50k personal loan at roughly 7-10% interest and buy the property straight up. I do the repairs and a few months later I get traditional financing at a much lower interest rate then pay back the personal loan. How do you feel about this strategy?

I'm a lender so I will give you some things to thing about and give you some insight on what I as a lender would think if you walked into my office.

Are you applying for secured or unsecured money? Depending on your institution they may not even go that high on unsecured money. Do you have any collateral to use such as boats, cars, bikes? Secured money will give you a better rate.

Most institutions don't want to see your debt ratio over 45% with the new loan. So if you do 50k unsecured at 48 months will your debt ratio still be within range with those new monthly payments?

Now as a lender, if you stepped in my office asking for 50k for a real estate investment and you have no established experience then I'm saying no. It's too risky for the institution. 

To get me to say yes your debt ratio needs to be very low, score needs to be preferably 740+, extremely good income, a history of being able to timely pay large loans, and some collateral. 

As a loan officer if I know this is for a home purchase (which I'm not lending that much without knowing what it's for anyway) then I'm not even going to entertain unsecured money. We are doing a mortgage because I want that home as collateral. 

You need to talk to a mortgage broker about the refinance before you move forward.    If you have more than 4 mortgages, then this will be treated under the 5-10 mortgage rules, which don't allow a cash out for an investment property, but I believe you can pay cash and finance if done in a certain time frame (I believe 6 months, but again  talk to a broker).

thats a lot of money for an unsecured loan.  Most places will want some sort of collateral.  I would say just get a conventional mortgage and save the headache.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you