What You Need to Know about Obtaining an Investment Loan

 investment loan

In the modern age, it's fair to say that the financial marketplace has never been more diverse or accessible.

This is reflected by the rise of margin-based, derivative assets, which can be traded efficiently through online brokerage services such as ATC Brokers and enable you to maximise your market exposure while minimising your initial investment.

In the case of more traditional markets, however, you may need to make a larger, upfront investment in order to finance your original purpose. This may require funding from a third-party lender, and this type of transaction is referred to widely as an investment loan.

In the post below, we'll look at this more closely while asking what you need to know when pursuing an investment loan.

Investment Loans and Real Estate – The Key Considerations

Investment loans are commonly associated with the real estate market, through which an individual can fund their purchase before looking to 'flip' the property for a profit.

On a fundamental level, it may appear as though there is little difference between an investment loan and a mortgage. This is not the case, however, as lenders will always make a clear distinction between traditional mortgages and loan programs for investment properties.

The reason for this is simple; as so called investment properties and the process of flipping real estate within a relatively short period of time is deemed as decidedly riskier than traditional mortgages for owner-occupied properties.

To begin with, lenders who offer mortgages to applicants know that borrowers will prioritise their repayments in a bid to retain their property and avoid defaulting. The same cannot be said in the case of real estate investment, as those involved will have spent minimal amounts of their own money while they also have no long-term affinity with the property involved.

With this added risk has a cumulative effect on the process of applying for an investment loan, as lenders will expect borrowers to have better credit, a significantly low debt-to-income ratio and access to a larger down payment on the property in question. In general terms, the deposit required on an investment loan property is usually around 20%, although in some instances this can be increased to 25%.

The Last Word

There's no doubt that real estate flipping has become marginally less popular in an age where aspiring investors can access lucrative derivatives that offer margin-based returns and the opportunity to profit even in a depreciating market.

The rising cost of properties throughout the UK has also made it more difficult for people to invest in real estate, particularly with the stringent conditions and cost considerations associated with investment loans.

Still, for those who are serious about emerging as property developers and gaining a foothold in real estate, it's clear that investment loans offer a proven route to market. The key is to understand the additional risk incurred by lenders and the financial obligations associated with investment loans, as otherwise you run the risk of experiencing considerable losses.



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