There are a ton of possibilities when investing in real estate. In addition to the types of investments you can make, such as a single or multifamily property, you also have options for funding your investments. One of those options is credit loans.
What Is a Credit Union?
First things first, let’s go over what a credit union is. A lot of people don’t really understand the distinction between credit unions and banks.
In America today, over 100 million people belong to credit unions. Some people belong to them simply because they worked for a particular organization, or their parents signed them up. Others join credit unions for the benefits they can provide for their members.
Essentially, a credit union is a cooperative financial institution. It is owned by its members and run by an elected board of directors. Not only does this give members greater control over interest rates and other factors affecting their bottom line, but it also gives them access to credit loans with more favorable terms.
Since credit union members often have real estate investment needs, credit unions fund a variety of residential and commercial property investments.
Why Use Credit Unions?
There are several benefits of using credit loans to fund property ventures. One benefit, in particular, is the lack of a pre-payment penalty. That’s right; no credit union in the country is able to assign or enforce pre-payment penalties.
Credit loan rates are attractive as well. Credit unions are typically able to offer lower interest rates than banks, but now rates are lower than ever. Since you are not locked into a loan when working with a credit union, you can take advantage of this declining rate market.
Do Credit Unions Provide Loans for Apartments?
Yes, credit unions provide loans for multifamily apartments, single-family dwellings, warehouses, office space, and nearly every type of property. Credit unions also network with other credit unions across the country. This means if you want to do something, chances are there is a credit union willing to work with you.
For example, let’s say you have a 20-unit building currently rented and stabilized, but you want to make some renovations to increase its value and profit potential. The odds are in your favor of finding a credit union to back your rehab costs. Of course, its current as-is value, as-completed value, and the renovation costs will be taken into consideration.
How Do I Qualify for a Credit Loan?
Unlike the big banks, funds, and investment companies, credit unions actually want to know who they are dealing with. This is true whether you are just starting out or have already executed several profitable property deals. They want to know your story.
They also want you to get to know them. Whether it’s a five- or seven-figure loan request, you can speak to whomever you want to get your questions answered, and in many cases, even meet the CEO.
Of course, credit unions will also want to look at a property’s financials. However, this is only one aspect of what they’re looking for. Rather than just granting or denying a loan request based on cold, hard numbers, credit unions also want to get to know you, the investor, and discuss what you are looking to do.
If I Have Several Loans, Can I Get a Better Rate?
Just like regional and community banks, credit unions offer better loans and more loan opportunities to investors they know and have already done business with.
Think of it like an eighth-grade dance. You and the person you asked to the dance start off nervously staring at each other and not knowing what to do. After a while, you get to know each other and get warmed up, so things go much more smoothly.
The relationship you have with a community bank or credit union works much the same way. The better you get to know one another, the better the rates you’ll receive, the more refinancing opportunities you’ll have, and so on.
Another nice thing about credit unions in particular is the cooperative community aspect of their framework. Unlike banks, credit unions work cooperatively together to provide funding capabilities beyond the individual local credit union you might be working with.
Are Loan Programs Available for Someone Who Already Owns a Property?
While credit loans are available for purchasing properties, they are also available for anyone looking to refinance or pull equity out. In fact, nothing makes them happier than to have someone come in and say, “I have this property. It’s stabilized. Here are the financials. This is the tenant.” In these cases, you can usually get an answer and be in and out the door in no time at all.
Ultimately, it all comes down to what works for you and what works for them. Credit unions don’t lend in a box. Since they are lending their money off of their balance sheets, they are able to sit down with investors and try to work out a sensible solution for both parties.
Is There a Type of Property or Person Credit Unions Won’t Lend Money To?
Credit unions will lend to just about anyone for nearly any type of property. While there are some credit unions that won’t finance a hotel and others that won’t lend money for a restaurant or strip mall, there are plenty of other credit unions that will.
The key to being approved for a credit loan is showing how you are going to pay it back. Of course, the numbers have to work, and the deal has to make sense, but it really comes down to relationships and showing your ability to repay your debts.
How Do I Find a Credit Union to Work With?
There are three credit unions for every bank in the U.S. today. With so many out there, it’s difficult to know which ones do what in your area and will finance your specific property or project.
To save yourself some time, consider reaching out to MBFS or another Credit Union Service Organization (CUSO). When reaching out and discussing your situation with them, it’s like reaching out to dozens of credit unions.
Disclaimer:The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.