It’s fairly easy to find a lender who’s willing to finance real estate investing deals. However, not all of them are actually legitimate. Some of them charge investors a high upfront fee and then disappear.
Luckily for you, we made a list of the most trusted loan providers for real estate investors so you can avoid being scammed! We also shared the different loan types you can avail and the things you should consider before getting a loan in this blog!
An investment property loan is a loan you take to finance the purchase of an investment property. It is different from getting a mortgage for your personal home since you’ll be earning from the investment property you’ll purchase.
Usually, real estate investors take out an investment property loan for their short-term or long-term property. But in other cases, they borrow money to finance a flip and embark on other real estate investing endeavors in order to gain financial stability.
Unlike getting a mortgage for a regular family home, taking out a loan for an investment property gives the investor a lot of options. There are several loan types an investor can choose from such as conventional mortgage, FHA loan, HELOC, hard money loan, VA loan, private money loan, and crowdfunding.
It is ideal for real estate investors, especially newbies, to get a loan to finance the purchase of investment properties. Even if the investor has enough capital to start with, financing an investment property out of pocket can significantly impact one’s wealth.
Put more simply, getting a real estate investment loan means you can make money by using the money of others. You earn short-term (via rental income) or long-term (through real estate appreciation). Nevertheless, it is crucial that you exercise caution when getting an REI loan and compare loan providers before settling on one.
Furthermore, whether your rental properties will help you earn or not is also directly impacted by the loan you’ll take out.
Even if you were able to buy investment property in your area, things could still go south if you can’t make monthly mortgage payments. The property you bought may be foreclosed and auctioned if you are not careful with your loan provider and you fail to settle your monthly payments.
Many REI lenders consider investment properties riskier. That is why they often set minimum requirements for investors who want to get a loan to purchase these properties. Here are some of these minimum requirements:
For rental properties and other investment properties, investors are often required down payments of at least 15%. However, most mortgage lenders require at least 20%.
But if you plan to live in a unit of your rental property (let’s say it is a multi-family house), you can use an FHA or VA loan and pay only a 3.5% down payment.
Note, however, that gifts are not allowed to be used when purchasing an investment property; therefore, the money you’ll use for a down payment should be from you. It’s a different story when purchasing multifamily investment properties via the VA and FHA. In this case, gifts can be used for a down payment.
Often, current lease papers, net operating income, tax returns displaying rental revenue, and a rent roll history may be requested by the REI lender aside from a hard credit pull. In some cases, the lenders also require an appraisal to confirm the rent amount of comparable properties in the area.
Moreover, for qualification purposes, REI lenders can also request you add the actual or the anticipated rental income from the investment property you’re planning to purchase. Rent payments from all the apartments you’re not living in will be included in your qualifying income if you plan to take out FHA and VA multifamily loans.
These monthly cash reserves or payments are what the mortgage lender often expects to see in the bank. Depending on how many properties currently belong to you, the reserves are often equal to 2 to 6 months' worth of your mortgage payments.
Some stringent loan programs need you to provide details of your rental properties history (whether you have owned a successful rental before). Most of them will ask for tax returns as proof of your REI experience.
For an investment property loan, lenders typically require the borrower to have a credit score of 640. However, if you're purchasing a multifamily home, the mortgage loan officer may increase the minimum requirement to 700 or higher. This hard credit pull is often required.
Real estate investors are not limited to a single loan type, unlike buyers who are purchasing a family home. They have several loan options including conventional loan, FHA loan, HELOC, hard money loan, VA loan, private money loan, owner financing, and crowdfunding.
Let’s compare all these loan types to determine which one suits your business goals.
A conventional mortgage loan is one of the most common loans taken out by real estate investors when buying a rental property or commercial property even though it is not easy to qualify for it. This type of loan is typically borrowed from a bank and they’ll decide about the structure, term, and interest rate of the loan.
Conventional mortgages usually have 15 to 30-year terms. This means the monthly payments are relatively low making your loan less risky and more manageable to repay. It has little effect on your ROI, too.
Another great thing about conventional mortgage loans is that geographic restrictions do not entirely apply to them. You can live in one place and take out a loan to buy an investment property in another city.
FHA is a type of mortgage that is backed by the U.S. government. It has fewer restrictions so it can provide real estate investors with access to financing even if they fail to get a traditional mortgage loan.
Note, however, that an FHA loan can only be used to buy a main house. It is not meant to be used for the purchase of a second home, a rental, or an investment property. If you’re set to get an FHA loan, you can get around this restriction through house hacking.
House hacking in real estate means buying a small multifamily house and living in one of its units. The remaining units are rented out to others.
Home Equity Line of Credit or HELOC is for homeowners who want to finance a real estate investment property using the equity they have in their home. This is done by converting the house equity into a line of credit; hence, the term HELOC.
The payback cycle of a HELOC or home equity loan typically lasts for 10 to 20 years. The extended repayment time drastically eases the burden, especially for newbie real estate investors.
Also, the fact that you only pay interest on the amount you’ve withdrawn and not on your total credit amount makes this ideal for any investor. There is no requirement for a down payment as well since you are borrowing money using your house equity.
Hard money loans are only available to real estate investors. These are actually short-term, unconventional loans that are given by private parties or businesses instead of the usual banks or other property lending institutions.
Hard money loans are usually taken out when house flipping because they can be paid off in shorter periods.
What’s more, hard money lenders do not require a set minimum down payment to approve a loan application. The agreement between the mortgage lender and the real estate investor will ultimately determine the exact down payment amount required.
There is also no required credit score when getting a hard money loan. This type of loan is very flexible and customizable based on your investing and overall business goals.
The VA loan is only available to veterans, active duty personnel, and surviving spouses since this is a government-backed mortgage. In other words, it is only meant for a particular group of real estate investors.
VA loans are primarily utilized to buy a primary residence similar to FHA loans. But using the house hacking technique we’ve mentioned earlier, real estate investors can also get this loan to buy a rental property or investment property.
Even eligible novice investors can obtain a VA loan fast. This is because the US Department of Veteran Affairs does not require a borrower a certain amount of down payment.
Compared to other loan types, the VA loan has lower interest rates. The current interest rate for both a 15-year and 30-year loan is 5.25%.
Private lenders, individuals, or businesses that are not as established as banks and operate on a smaller scale compared to hard money lenders are the providers of private investor real estate loans.
Private money lenders may also be family members, friends, close acquaintances, and other real estate investors with enough money to lend.
Typically, this type of loan is the least structured and only the agreement between the borrower (real estate investor) and the lender can determine the specific terms and conditions.
Instead of the real estate investor's financial assets in the bank, private money lenders use the borrower's real estate properties and other physical assets as collateral for the loan. Among all the loan types listed here, this has to be the one with the most risks.
Crowdfunding is for tech-savvy real estate investors. This is more of a real estate investment method in which several small-time investors contribute to buy properties; hence, the name crowdfunding. The real estate assets that can be funded can either be residential or commercial.
Real estate investors have the option to use multiple real estate crowdfunding sites simultaneously since each deal requires a low initial commitment. Doing this can also diversify their portfolio in the fastest way.
Because crowdfunding is managed by real estate experts and professionals, it is very low risk. Add that to the fact that it only takes very small investments, it’s definitely worth considering.
To get the right financing for your real estate investing deals, you should look into several factors, not only the loan amount. Knowing these considerations would increase your approval rate and your net operating income in the long term.
Learning the maximum amount of money that investment loan programs offer is an important factor when choosing a lender. This can help you decide which loan to take when buying or fixing an investment property and determine if you'll gain a high net operating income.
You can expect the maximum loan amount for many real estate investment loans to be $647,200. But there are certain loans with a larger maximum amount that you can use for real estate properties in expensive areas.
Moreover, you should also identify the lender's loan restrictions when it comes to their loan programs. Will they fund the investment property you’re buying 100% or are they would only finance 50% of the amount? Can they only finance repairs?
As mentioned earlier, there are various loan options available to real estate investors. You should take this into account before choosing any lender.
A conventional loan is a typical type of loan where a real estate investor is not required to live in the investment property he’ll purchase.
Meanwhile, if the real estate investor plans to reside in one of the units (assuming it’s a multi-family home), FHA , VA, and other agency loans can be used.
On the other hand, real estate investors with significant equity in their main residence can get a home equity line of credit (HELOC) or home equity loans to buy an investment property. However, if the real estate investor fails to pay back this loan, they can lose their principal house.
The interest rate of investment property loans is actually determined by a variety of criteria, similar to a mortgage loan for a primary residence.
In general, you can expect the interest rates for an investment property loan to be higher than that of a main residence. This is because conventional loans for investment properties have a higher risk compared to conventional mortgage loans.
Also, keep in mind that the interest rate of a real estate investment loan is always influenced by the investor’s credit score. If you have a high credit score, expect the investment property mortgage rate to be lower and vice versa.
Another thing to note is that when you make a large down payment, you would have lower interest rates as compared to making a small down payment so you'll be able to enjoy your rental income more.
When getting a real estate investment loan, make sure that you only transact with a lender in the same area where the rental property is situated. Connect to a local real estate agent to find one. Similarly, if you are purchasing a rental property, it is better to work with a banker since that is in the same area as your home.
Not all lenders offer investment property loan programs in all states or regions. If you don’t want the hassle of communicating with most mortgage lenders living far from you, it is much better to target lenders in your community. You can easily drive to their office if you want to clarify things, plus the process would be a lot faster since communication and application submission would be super easy.
All real estate lenders require a down payment when you take an investment loan. The amount varies depending on several factors including, the lender, the type of loan, and the actual amount of loan you’re applying for. Generally, though, lenders require a 20% down payment.
Almost in all cases, the higher the down payment, the more likely it is for the real estate investor to be approved for hard money loans. This also results in cheaper interest rates.
If the real estate investor decides to take on a loan supported by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA), the down payment for a multifamily rental property will be as low as 3.5 percent.
To determine whether the real estate investor can pay the loan, mortgage lenders usually examine their credit score. Investors with a high credit rating have a higher chance of getting approved for a loan.
Typically, mortgage lenders only approve loan applicants with a credit score of 640 or above. But if you have a low credit score, it’s still not the end of the road. Lenders still work with applicants who don't have impressive credit scores, for example, those whose credit score is 620.
Aside from being approved for a loan easily, real estate investors with good credit standing would also enjoy more favorable loan terms and even reduced interest rates. That being said, before applying for a loan, make sure your credit score is high.
An investment property loan application typically involves a few extra steps compared to mortgage loans for primary homes because of lender requirements.
If you need a loan to be approved fast, you should look for hard money lenders with a more streamlined process. Preferably those that offer offline, online, and phone-based applications so you can choose the most convenient option for you.
To further speed up loan approval, it is also suggested to prepare common documents required by hard money lenders beforehand. This commonly includes documentation of the real estate investor's financial assets (stock portfolio, retirement account statements, W-2s, or bank statements). Some lenders also require the property’s leasing or rental revenue records.
How fast a lender can approve and provide the loan is also something you should consider especially if you are on a strict timeline. Most hard money lenders usually have a 30-day closing window for investment property loans.
With your timeframe in mind, you should ask the lender about how fast they can provide you with the loan during your initial application. This is so you can save time and you can connect to the right lender immediately.
If you have a lot of competitors for the property, this is also worth mentioning to the lender. Since you communicate that you’re in a rush, they’ll do their best to expedite the process and provide you with the loan.
As mentioned, it’s quite easy to find REI lenders on the web. However, not all of them should be trusted. Here are 14 real estate investor loan program providers that are widely used by real estate investors in the country!
Even though Quicken Loans is primarily known to provide jumbo loans to real estate investors, they also have fixed- and adjustable-rate home loans, minimum loan, FHA, VA, USDA, and mortgage refinancing. They also cater to both residential and multi-unit investment properties.
Quicken Loans tops our list because it offers different loan choices, they have an online loan application so you can apply wherever you are, and they also loan in all 50 states. Moreover, Quicken Loans have significantly competitive rates, so there’s less risk for you.
Currently, Rocket Mortgage serves as Quicken Loans' online platform and loan processor so the application is completely automated.
Citibank can provide financing for real estate investors purchasing residential, singly family houses, multi-unit, and commercial properties. This is also one of the top choices of many real estate investors since they have different home loan products, low down payments, and low rates and fees.
Typically, when you apply for a loan in Citibank, it takes 30 to 60 days to complete the loan’s underwriting process. However, Citi does not strictly adhere to a timeline. How fast or slow they can give you a loan depends on several factors.
You can apply for a loan program in Citibank through your phone, on their website, and in person.
Veterans United is a full-service lender that primarily offers VA loans for eligible veterans, duty personnel, and their spouses. As of writing, they are considered one of the biggest VA mortgage lenders in all the states of the country.
There are many reasons why Veterans United Home Loans is preferred by many real estate investors. For starters, they have flexible qualification requirements, no required private mortgage insurance, and they offer reduced rates and monthly mortgage payment. What’s more, they can also offer VA loans with no down payment.
The loan products available at Veterans United Home Loans include fixed and adjustable-rate mortgages, cash out refinance loans, jumbo loans, and cash-out loans.
Lendio is a marketplace where real estate investors obtain commercial loan offers. The company claims that by using their free online service, you’ll get at least 75 loan offers from different lenders in just a few minutes and as of writing, they have already funded over 300,000 loans.
Similar to Citibank, Lendio also helps real estate investors buy residential, multi-unit, and commercial properties.
You can also get an FHA loan offer from their marketplace which reduces the down payment you need to only 3.5% of the total property price. Otherwise, you will be required to pay a 25% to 30% down payment.
LendingOne is a favorite rehab lender of many flippers and real estate investors because they have affordable rates and fees and they issue pre-approval letters and also proof of funds.
The two investment property loan options offered by LendingOne are fix and flip loans and rehab-to-rent loans. The rehab-to-rent loan has a 30-year fixed-rate loan and the down payment is between 10% and 20%.
Meanwhile, for fix and flip investors, LendingOne can finance up to 90% of your repair expenses. The fix-and-flip loan can be settled in two years of interest-only payments.
Note, however, that only multi-unit properties, condos, and townhomes, are financed by LendingOne.
Nationwide Home Loans Group offers some of the best loans for single-family residential investments. For starters, they offer loans to purchase vacant land. They’ll not only finance the purchase of land but also the construction of a home. They also do mortgage financing for commercial property.
The best thing about the loans offered by Nationwide Home Loans Group is that you don’t need to pay them until the house is built. The maximum loan amount is $726,200 if the loan is under the FHA or VA programs.
Nationwide Home Loans Group is a division of Magnolia Bank. The bank has expanded its services; hence, the establishment of the Nationwide Home Loans Group.
PennyMac is also a top loan provider to real estate investors. They have various coverage options and rate-locking options. If you want to know how much you can loan from PennyMac, you can use their easy-to-navigate online quote tool. Meanwhile, they also offer some solutions like mortgage calculators, house valuation tools, and affordability calculators, and tools.
As of writing, PennyMac only offers conventional mortgage. They also have strict eligibility requirements for real estate investors, including a credit score of at least 680 and 6 months of savings in their bank accounts.
Despite the strict requirements, many investors still try getting a loan at PennyMac because they have the best rates and terms.
Lima One Capital offers a wide range of loan options, a broad coverage area, and a fairly easy application process. It also has a dashboard where investors can manage their loans and view real estate market data.
Some of the financing options Lima One offers are loans for multifamily, fix-and-flip, rental, and new properties.
The only catch when getting a loan from Lima is that they have high-interest rates for first-time borrowers (typically 12% and above). But if you’re already an expert borrower, you’ll enjoy cheaper rates for their investment property loans.
Aside from rental property loans, real estate investors can also use Lima One's market research to make better business decisions.
Kiavi is ideal for newbie real estate investors as it doesn’t have strict requirements compared to the loans mentioned above. As a matter of fact, real estate investors can obtain an investment property mortgage from Kiavi without an appraisal or proof of income.
To be specific, Kiavi does not require their borrowers to provide income documentation which includes bank records, W-2 forms, or tax records. This is a great chance for low-income newbie investors who wants to jump into the industry but are in need of a great financing option.
The fact that real estate investors don’t have to present house appraisals also cuts a big amount on an investor’s capital.
CoreVest Finance is not for newbie real estate investors. This is because they require their borrowers to at least have three completed real estate investment transactions in the past two years. CoreVest Finance is very cautious with its clients because they know the high risks of real estate investing.
Nevertheless, this lender covers a lot of states and has a wide variety of financing choices. If you do meet their requirements, they’re one of your best lender options.
CoreVest Finance offers a variety of investment property loans, including rental, multifamily, new construction loans, and fix-and-flip. This means you have a higher chance of getting approved.
Flip Funding offers loans for fix-and-flip projects, bridge loans, construction loans, rental loans for landlords, and even loans for multifamily and commercial structures. This company has flexible rental property loans that suit any real estate investing strategy.
Flip Funding also has a more lenient application standards. To get a fix-and-flip loan, you are only required to have a 575 credit score. This is relatively low compared to other loan providers which require a 650 credit score. Flip Funding also covers practically all states and they do not look into debt service coverage ratio and debt to income ratio.
Moreover, Flip Funding has competitive interest rates which starts at 7.50%. They can provide you with the loan in as fast as two weeks and they don't charge prepayment penalties.
Patch Lending enables you to get a loan for real estate investment in as fast as five days and the loan offer only stands for 10 days for any minimum loan amount. If you want to snatch up deals on residential rental properties, these rental loans suit you best.
Moreover, Patch Lending can assist with many other types of real estate investments since they also provide loans for leases, development, and even flipping.
The only downside of Patch Lending is that it doesn't operate internationally. The states of Arizona, Idaho, Minnesota, Nevada, South Dakota, and Utah are currently not covered by their services so if you plan to buy an investment property or commercial property from these areas, you cannot use Patch Lending.
Residential Capital Partners doesn’t require any down payment so you will have more money for renovations or repairs of the property you are purchasing. Note, however, that this 0% down payment is only applicable to fix-and-flip loans and bridge loans for rental properties.
Residential Capital Partners does not offer loans to all the states of the country. Currently, it exclusively offers loans in 12 states including Connecticut, Massachusetts, New Jersey, New York, North Carolina, Florida, Georgia, Ohio, Pennsylvania, Tennessee, South Carolina, and Texas. Moreover, it does not fund individuals, only corporations. They don't charge any prepayment penalties.
Whether or not you’ll find it easy to get an investment property loan depends on several factors.
For example, if you are a real estate investor who has years of experience backing you up, a good investment portfolio, a high credit score, and enough money for a high down payment, you’ll easily get a rental property loan.
Meanwhile, if you’re a newbie investor who doesn’t have enough capital for down payment and you have a low credit score, it would be challenging to get rental property loan approval.
The minimum down payment for investment property loans (conventional loans, rental property loans, etc.) depends on each lender. But generally, most of them ask for a 20% down payment. Note, though, that for VA, FHA, and other agency loans, only a 3.5% down payment is required.
The most common investment property loans real estate investors take are non-qualified mortgage loans, VA and FHA loans, and conventional loans. These loans don't affect the net operating income or debt-to-income ratio that much.
Even if you have enough money to use as capital to buy a real estate investment property, it is still wiser to get a loan for your first deal or flip. This way, you’re not risking your life’s savings to earn more money and you maintain financial stability.
All of the loan providers listed above are the top choices of many real estate investors. Now that you have a list of possible loan providers, it’s time to search for an investment property to purchase.
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