Are there mortgages available for those of us buying up (or wanting to buy up) investment properties? Yes, absolutely.
In this post, I’m going to share a few quick tips on rental property mortgages. I also suggest you check out an extensive post I’ve written on the topic of loans for investment properties. Alright, let’s get started.
What kinds of mortgages are available for rental (investment) properties?
The types of mortgage loans available for investment properties are very similar to a typical home loan someone would get to purchase a property they’ll be occupying as their primary residence.
Some loans, like FHA, USDA & VA, loans are insured by the federal government. This is NOT the case with conventional loans.
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Conventional loans, especially for investment properties, usually require 15%-20% as a down payment and are often amortized over 30 years. Now, there are two different types of conventional loans that I want to mention: conforming & non-conforming.
Conforming loans are mortgages that conform to the guidelines of Fannie Mae & Freddie Mac. If you’re new to all this, then what I just wrote will make no sense, so let me shed some light.
If you were to walk into a bank to get a home loan, many times, after the loan closes, the lender will sell your loan on the secondary market.
There are a number of entities that buy mortgages but Fannie Mae & Freddie Mac buy the lion’s share. So, if banks are aiming to sell their loans, they need to make sure their mortgages conform to Fannie Mae & Freddie Mac guidelines – otherwise they can’t sell them.
Now there’s one big guideline that Fannie Mae has that really hinders real estate investors looking to grow a real estate portfolio: loan limits.
Now, there are a number of Fannie Mae loan limits, but the one that affects us investors the most is that Fannie Mae doesn’t allow individuals to have more than 10 financed properties. However, there’s a way around this, and it’s called non-conforming loans.
Some banks and lending institutions don’t sell their loans, so they don’t have to worry about conforming to Fannie Mae guidelines. These lenders are known as “portfolio lenders” because they keep some or all of their loans in their in-house portfolio.
If you’re looking to really scale your real estate business, then these are the lenders you want to work with. Due to the fact that they can be more flexible with their lending practices, portfolio lenders are often much more investor-friendly than banks who live in the “Fannie Mae box.”
Portfolio lenders tend to be your smaller regional banks. When you call on them, ask to speak with commercial lending.
Government insured loans
Government-insured loans can be a great way to finance 100% of your investment property, but there’s one big catch…the property has to be a multi-family (2-4 units), and you have to live in one of the units.
Other forms of financing
Outside of bank financing, there are a number of other ways you can get money to purchase or rehab a property such as private money, hard money, owner-financing, cash-out refinancing, and more. For a detailed explanation of these other forms of financing, check out this post.