Real Estate Investment Loan

Real estate investment loans are a great way to get into the real estate market without having to save up for a down payment. However, there are specific criteria that borrowers must meet in order to qualify.


Lenders consider your credit score, debt-to-income ratio, and cash reserves when approving mortgages on investment properties. Additionally, loan interest is tax-deductible, reducing your total tax liability.

1. Conventional loans

Conventional loans can offer a variety of mortgage options, including those for investment property. These are typically structured differently from mortgages for owner-occupied homes, requiring higher credit scores and bigger down payments to qualify. This is because lenders consider investment property loans more risky. If a mortgage isn’t paid, the lender can claim the home as a security for its loan and take possession of it.

These loans can be used to purchase properties to rent out and use as income. They often have fewer restrictions than government-insured mortgages and can be a good option for borrowers who have excellent personal credit.

Alternatively, investors can also seek financing through private lenders and finance groups. These types of mortgages can be more flexible, allowing them to tailor terms for different real estate investing strategies. However, they can have higher interest rates and upfront fees compared to conventional mortgages. They may also have shorter term lengths and can be more difficult to qualify for if you aren’t already an established investor. Hard money loans, for example, are often used by real estate flippers, and they typically have a lower loan-to-value ratio than conventional mortgages.

2. FHA loans

FHA loans are government-backed mortgages that can be accessed through many traditional lenders and mortgage brokers. They allow for lower credit score requirements and down payments, and are an option for homebuyers who might not qualify under conventional loan guidelines. Lenders must verify borrowers’ income by requiring two years of pay stubs, federal tax returns, driver’s licenses and full statements of bank accounts and other assets. Borrowers must also provide verification of their relationship to a spouse and meet debt-to-income ratios.

You can use an FHA loan to purchase a multi-family property with up to four units, live in one of the units and rent out the others to offset your mortgage payments. You must pay an upfront premium at closing of 1.75% and annual mortgage insurance payments that are calculated based on the size of your loan, down payment and loan term. You can refinance your FHA loan to remove the MIP once you have 20% equity in your home. If you’re considering an FHA loan, familiarizing yourself with the ins and outs of these loans from the start can help you avoid any surprises down the road.

3. First-rank mortgages

As the name suggests, first-rank mortgages are the first type of loan that a lender takes on a property. These loans are secured by a lien on the real estate, giving the lender the right to sell the property in order to cover the loan. This makes them the highest priority in terms of recovering funds if the borrower defaults on their payment.

Oftentimes, these mortgages are held by banks or other financial institutions. They also tend to have lower interest rates than second ranking mortgages. The reason for the lower rate is that the first-rank mortgages are considered safer investments for lenders, whereas second-rank mortgages are riskier and have a higher chance of default.

Investors who invest in first-rank mortgages can expect their money to be repaid before other creditors with lower priority security (such as mezzanine debt or equity) receive any of the proceeds from a sale of the real estate used as collateral. This offers additional protection to investors in the event of a downturn in the property market, as it reduces exposure to individual borrowers or securities and cyclical movements in markets.

4. Home equity loans

Home equity loans (also known as second mortgages) allow homeowners to tap into their equity and use that money for investment purposes. The amount of the loan is typically based on a combined loan-to-value ratio and the borrower’s credit history.

This type of financing offers a fixed interest rate and can be used for longer terms. But it is important to remember that your home is acting as collateral and, if you fail to make payments, the lender can foreclose on your property.

Home equity loans require significant home equity and often have higher fees than HELOCs. Borrowers also face the risk of losing their home if property values decline. For these reasons, if you’re considering a home equity loan, consult with a qualified lender to ensure that you have the right mix of resources for your property investment goals.

5. Real estate equity

Real estate investment is a lucrative endeavor, with potential for steady income from rental tenants and long-term capital gains on the sale of the property. However, investing in real estate requires careful planning and research to avoid financial pitfalls. Financing options play a significant role in most measures of return on investment, and the type of loan an investor chooses can have a significant impact on rates and terms.

Investment property financing is available through conventional mortgage loans, FHA loans, and hard money loans. Each has its own pros and cons, making it crucial for investors to consider their personal situation and investment goals when deciding on the best financing option for them.

Private loans from friends and family are another popular source of investment property funding. These loans come with more flexible pricing and fees, but also have the potential to be riskier than other sources of investment property financing. In addition, they may not provide the cash flow needed to cover unexpected expenses. Therefore, it is a good idea to have emergency funds set aside for real estate investments, regardless of the lending option selected.