Rental Property Loans

As a real estate investor, having a clear understanding of the different types of rental property loans available is crucial to building a profitable portfolio. From traditional mortgages to cash-out refinance loans, there are a variety of options to consider when financing your rental properties. In this post, we will delve into the different types of rental property loans, their requirements, and how to determine which one is best for your investment goals. Whether you’re just starting out or looking to expand your existing portfolio, understanding the ins and outs of rental property loans can help you make informed decisions and achieve financial success.

What is a Rental Property Loan?

A rental property loan is a type of mortgage loan that is used to purchase or refinance a rental property. These loans are typically used by real estate investors who wish to earn rental income from a property, and are similar to traditional mortgages used to purchase a primary residence.

5 Types of Rental Property Loans and How Each Works

Conventional loans:

A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. These loans are offered by private lenders, such as banks, credit unions, and mortgage companies, and are typically used to purchase primary residence, second homes, and investment properties.

The most common type of conventional loan is the conforming loan, which conforms to the guidelines established by government-sponsored entities Fannie Mae and Freddie Mac. Conventional loans are also known for offering a variety of loan terms and interest rate options, which can be beneficial for borrowers seeking flexibility in their mortgage payments.

FHA Loans:

FHA (Federal Housing Administration) loans are government-insured mortgages that are designed to make it easier for people to buy a home. They are a popular choice among first-time homebuyers and those with lower credit scores or limited funds for a down payment.

The interest rate on an FHA loan can be slightly higher than on a conventional loan, but the lower credit score and down payment requirements make FHA loans a good option for many borrowers. Additionally, FHA offers a variety of loan terms and interest rate options, which can be beneficial for borrowers seeking flexibility in their mortgage payments.

Portfolio Loans:

These are loans that are held and serviced by the lender, rather than being sold on the secondary market. They often have more flexible underwriting guidelines and can be used for properties that do not meet the requirements for conventional or government-backed loans. Portfolio loans are typically used by real estate investors to finance multiple properties under one loan, rather than having to take out separate loans for each property.

Hard Money Loans:

Hard money loans are short-term loans from private investors, typically have higher interest rates and shorter terms than traditional loans. These loans are secured by real estate and are often used by real estate investors who need to quickly close on a property. Some of the main benefits of hard money loans include speed, lower credit score requirements, flexibility, and less paperwork.

Bridge Loans:

A bridge loan is a short-term loan that is used to “bridge the gap” between the purchase of a property and the long-term financing. These loans are typically used by real estate investors and developers who need to quickly close on a property. They can also be used to make renovations or improvements to a property, or to purchase a property that is not eligible for traditional financing.