How to Finance an Investment Property

Conventional Mortgages

Conventional mortgages are a common choice for financing investment properties. These loans are not insured or guaranteed by the government and usually require a higher credit score and a larger down payment than primary residence mortgages. Conventional loans offer competitive interest rates and flexible terms, making them an attractive option for investors who meet the stricter qualification criteria. However, because they often require a 20% down payment or more, it's essential to have substantial capital available.

FHA Loans

Federal Housing Administration (FHA) loans are known for helping first-time homebuyers, but they can also be used for investment properties under specific conditions. FHA loans require lower down payments and credit scores than conventional loans, making them more accessible. Before you qualify for a FHA loan, the property must meet specific standards, and the borrower must live in one of the units if it's a multi-family property. This option is beneficial if you want to start with smaller multi-unit buildings. Professional property managers can help you maximize your investment, whether a duplex or triplex.

VA Loans

Investors who have served in the army, are on active duty or are certain members of the National Guard and Reserves qualify for Veterans Affairs (VA) loans. VA loans offer competitive interest rates, no down payment, and no private mortgage insurance (PMI). While this type of loan is intended for owner-occupied properties, investors can use VA loans for multi-unit properties as long as they live in one of the units. This can be an excellent option for veterans looking to begin their real estate investment journey with lower initial costs.

Commercial Loans

Commercial loans are a viable option for investors looking at larger multi-family properties or commercial real estate. These loans are ideal for properties with five or more units and usually require a detailed business plan and financial predictions. Commercial loans have different qualification criteria and often require a larger down payment and higher interest rates than residential loans. This is an excellent option if you want to finance larger-scale investments that can generate significant rental income.

Portfolio Loans

Portfolio loans are offered by some lenders who keep them in their portfolio rather than selling them on the secondary market. This allows for more flexibility in terms of qualification. Portfolio loans benefit investors with multiple properties or those who might need to meet the strict requirements of conventional loans. These loans allow investors to finance several properties under one loan, simplifying the management of investment portfolios. You can onboard the expertise of a property management company if you want to finance multiple properties, ensuring you get a significant ROI.

Financing an investment property involves exploring various mortgage options and implementing strategic planning. Contact us at 3 Options Realty and schedule a consultation with our property managers for guidance on the various mortgages and smart financial strategies to achieve your financial goals.