Property investment has become quite a trend. People no longer just buy a house to live in but also to refurbish, renovate, upgrade and remodel simply to sell it after at a better price. Real estate has always been said to be more lucrative than other businesses and realtors supposedly make more money. Investors not only consist of citizens of the US but also foreigners who see the potential in property investment. America has long been a favorite destination for property investors both locally and internationally due to the comparatively low prices and good capital returns in certain areas. If you wish to be part of the real estate business, perhaps you should begin by learning the best types of mortgages for you to apply for when buying a house you intend to sell for a profit.

When you purchase a house with the intention of selling it later on, you know that you will not be the owner of the house for more than a couple of years or just until you get all the remodeling and renovation done before you could put the house back on the market. This is why it is essential that you get the right kind of mortgages to make the process of selling the house easier when the time comes. You would not want to apply for any easily accessible type of mortgage only to find out that the program makes reselling more complicated and probably costs so much money that you end up not making any profit at all. Now let’s see what type of mortgage would work well for your buy-to-sell plan.

1) Adjustable Rate Mortgage
The adjustable rate mortgage is where the interest rate fluctuates in relation to specific indices and margins. Initially the interest rate is relatively lower than that of fixed rate mortgages. The interest rate will then start to fluctuate after the adjustment period is up. The current interest rate will remain stagnant during the adjustment period. The adjustment period will depend on the agreement between you and your lender. It could be every 1, 3 or 5 years.

The adjustable rate mortgage is preferable to fixed-rate mortgages and home purchase loans if you intend to sell your property before the interest rate increases. This involves proper planning and management from your side as there is no sure-fire way of predicting when and by how much the interest rate will go up. You have to make sure that you have approached potential buyers before the adjustment period for the higher interest rate is due. The drawback is that if you are unable to sell your property, you will have to be financially prepared to make the higher monthly payment. Although there are chances that the interest rate will go down, typically the rates always go higher. So if you cannot sell the house before you have to make higher monthly payments, you might want to consider refinancing the house if you cannot afford to pay the higher rate.

2) Balloon Mortgage
Balloon mortgages and rates can be either fixed or adjustable. The balloon mortgage starts off like a typical fixed or adjustable rate mortgage. After the down payment is made, the scheduled monthly payments will then follow. The difference between a balloon mortgage with conventional mortgages is that you are given the opportunity to pay off your entire loan in half the pay back period of a conventional loan. In essence, you are given 15 years of pay back period but have the flexibility of paying the monthly installments of a 30-year program. At the end of the pay back period, you will be expected to make full payment in one lump sum.

This particular type of mortgage would work well if you intend to buy the house, immediately renovate and remodel it and resell it in less than a couple of years. You will definitely save quite a lot of money this way and earn more profit because the monthly installments are relatively lower than that of conventional mortgages. But you have to make sure that you sell the house before the loan term is up and it is time to make your final lump sum payment.

Finding the right type of mortgage for your buy-to-sell investment is crucial to make sure that you do not end up in financial troubles instead of making huge profits like you initially intend to. So you cannot simply make whimsical choices. Weigh your options well and make informed and calculated decisions to minimize the risk of you having to foreclose due to your inability to pay your lenders.

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Category: Finances
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