5 Types Financing | Property Align Inc. - Manning and Company

Below are five solid types of financing for your first investment property. For each financing type, we will tell you:

• What it is

• The good

• The bad

• Who can use it (i.e. owner occupied, non-owner occupied, 1-4 units, or any property)

• Possible investment strategies with this financing type (i.e. house hacking, live-in flips, rentals, etc.)

• Where to find this financing

If one or more of these financing types sound interesting to you, I recommend making it the primary focus of your education. That focus will help you become more competent and confident as you work on your first deal.

Here are 5 possible types of potential financing for your first investment property.

1. FHA (Federal Housing Administration) Loans

What it is: These federally subsidized loans generally have lower down payment requirements (3.5% as of 2016) and easier qualifying standards than other loans. They also have low, fixed interest rates for 30 years.

The Good: Easier to qualify, attractive terms.

The Bad: Fees can be higher than other programs, the closing process is not fast typically limited to one deal at a time, and major fixer properties won’t qualify.

Who can use it: Owner-occupied only.

Investment strategy: Good for house hacking or live-in flips, 1-4 units only.

Where to find it: Mortgage departments at banks, mortgage brokers, credit unions, and large mortgage lenders.

2. VA (Veterans Administration) Loans

What it is: These are also federally subsidized loans only for U.S. military veterans. The terms of these loans are usually the same or even better than FHA, including a 0% down payment.

The Good: Easier to qualify, attractive terms, multiple loans are possible.

The Bad: Like FHA, closing process is not fast, and while multiple loans are possible, there is a limit based upon your maximum entitlement; major fixer properties won’t qualify.

Who can use it: Owner-occupied only.

Investment strategy: Good for house hacking or live-in flips, 1-4 units only.

Where to find it: Mortgage departments at banks, mortgage brokers, credit unions, and large mortgage lenders.

3. Conforming Loans

What it is: Conforming means the loan conforms to the rules and guidelines of mortgage giants Fannie Mae and Freddie Mac. While the requirements are a little more stringent than FHA or VA, conforming mortgages are still a great mortgage product for investments. Although 20% down or more is the standard for non-owner occupied loans, programs do exist for 5-10% down payments on owner-occupied loans if you hunt around.

The good: Attractive terms with low interest over 15-30 years, faster qualifying than FHA/VA.

The bad: Larger down payment than FHA or VA, limited to 4-10 loans; major fixer properties won’t qualify.

Who can use it: Owner-occupied or non-owner occupied. Non-owner occupied typically requires more money down, higher interest rates, and other more stringent requirements.

Investment strategy: House hacking, live-in flips, rental real estate; 1-4 units only.

Where to find it: Mortgage departments at banks, mortgage brokers, credit unions, large mortgage lenders.

4. Portfolio Loans

What it is: Portfolio loans are kept by the bank or lending institution that made the loan, unlike conforming loans which are sold to Fannie Mae, Freddie Mac, or other mortgage investors. This means the requirements and loan terms vary depending upon which lender you use.

The good: More flexibility, potentially larger number of loans than conforming, possible to get loans on fixer-uppers and commercial.

The bad: Terms are not typically as good as FHA, VA, or conforming loans, you may have balloons in 3-7 years and/or adjustable interest rates, credit and down payment requirements more strict than FHA or VA.

Who can use it: Owner-occupied or non-owner occupied; 1-4 units, multi-units, commercial.

Investment strategy: House hacking, live-in flips, rentals, fix-and-flips.

Where to find it: Banks (especially local ones), savings and loans, credit unions.

5. Hard Money Loans

What it is: These loans are asset-based loans, meaning the primary concern of the lender is the property serving as collateral. The individuals or small groups that make these loans are in the business of lending, so they can usually move fast, which makes them attractive for purchasing investment deals.

The good: Fixer-uppers are OK, technically no limit to number of deals, can often borrow all or part of repair costs.

The bad: High interest rates and other costs, may not loan to brand new investor who has no experience with real estate, typically short-term loans.

Who can use it: Non-owner occupied; 1-4 units, multi-units, commercial, land.

Investment strategy: Fix-and-flip, rental property (for purchase, will need to refinance).

Where to find it: BiggerPockets has a hard money lender directory. You can also usually find several lenders at your local real estate investor association. Soon BIPPO’s PARTS AND LABOR will h be a definitive guide to INVESTOR FINANCING and will interface with the HomeInvestorTool real estate app in real time.