Real Estate Buying Tip: 504 Loan Program

I worked with the SBA.gov in school but never really understood how to utilize it best. In my opinion the best way to work with them is through the 504 Loan Program. My first investment property, I bought under an amazing 100% loan. The program was an 80% first and 20% second. I loved the fact that I had and investment property. I loved even more so the fact that I had really put nothing down on the property. In the end I paid roughly 3000 cash to purchase a house at $255,000. The home was eventually sold for over $300,000. Now while the days of those loans are long gone, there are other programs that are just as great. In Maryland, the 504 Loan Program is a great way for investors to buy additional property.

What is the 504 Loan Program

The 504 Loan program is a SBA loan where the federal government backs individual loans for specific assets. Ideally, you will be in business. You could also be in the process of starting your business. You will only be funded if you are a legitimate business. SBA.gov is a great resource to find out more information about the 504 program and how to buy real estate with it.

You will basically have a 50 / 40 / 10 loan. The 50 mean 50% of your 504 Loan will come from a commercial lender. There are many local banks that work with the SBA to do the 50% part of your 504 loan. The 40 is 40% of your loan which will be provided by a local non profit that will use SBA funds to help fund your project. You are responsible for the 10 which is 10% of the loan. For some newer businesses they require up to 20% of the loan to come from you. This would mean on a 100,000 loan your would be required to come up with $20,000. Some people use their home equity line of credit to get the 20%, up front cost. Again you will still end up with lower cost of funding that if you did the project outside of the SBA 504 program.