What Are the Main Types of Rental Property Loans?

While building a rental property portfolio is a great way to become financially independent, not everyone can afford to buy real estate in cash.

Personal finance gurus like Dave Ramsey recommend saving up and buying investment properties. But this isn’t a realistic option for many people who want to acquire properties and rent them out to tenants.

That’s where rental property loans come into the picture. They provide a way for investors, such as yourself, to buy real estate and generate income.

As you might imagine, there are different types of rental property loans available. Here’s a look at some of your options.

Conventional Loans Are Among the Available Rental Property Loans

You can get a conventional loan, otherwise called a confirming loan, from banks, mortgage brokers, and even credit unions.

Guaranteed by Freddie Mac or Fannie Mae, such a loan must be in line with government-sponsored enterprise rules. Freddie Mac and Fannie Mae are mortgage entities backed by the U.S. government.

If you have an acceptable credit score, you can get relatively low interest rates and fees. A downpayment of between 15% and 25% is required. The precise percentage will depend on the type of rental property you want to buy.

Veterans Affairs Multi-Unit Financing

When it comes to seeking out the best rental loans, you should also consider Veterans Affairs (VA) Multi-Unit loans.

These loans are backed by the U.S. government’s VA department and are offered by traditional lenders as well as by mortgage brokers. You need to be an active-duty veteran, service member, or qualifying spouse to get a loan.

You won’t have to make a minimum downpayment and you won’t have to meet any credit score threshold. A VA multi-unit loan can be used to buy as many as seven units. But you have to live in one of the units to qualify.

Federal Housing Administration Multi-Unit Housing

This classification of loans for rental properties is offered by traditional lenders and mortgage brokers. A Federal Housing Administration (FHA)-backed loan can be used to buy, build, or repair real estate.

When you get such a loan, you’ll typically pay a lower down payment than you would with a conventional loan. The credit score requirement is also lower with an FHA multi-unit housing loan than with a conventional loan.

Pursuant to the terms of such a loan, you have to live in one of the units for at least a year.

Portfolio Loans

You can get a portfolio loan if you want to buy one or more rental assets using the same lender.

When you qualify for such a loan from a private lender or mortgage broker, you can work with the loan provider to establish the down payment, interest rate, credit score, and more. So there is a great deal of flexibility.

The borrowing criteria aren’t as strict as is the case for other types of rental loans. You should also know that, as a result of this, there are prepayment penalties, loftier fees, and balloon payments.

A balloon payment refers to a substantial payment that is due at the conclusion of a loan.

Blanket Mortgage Loans

If you’d like to finance two or more rental properties under one loan, a blanket mortgage loan is something to consider. It’s one of the more flexible rental loan options because you can use it to buy any income-generating property.

Private lenders and mortgage brokers offer blanket mortgage loans. The lenders will determine the down payment minimum, interest rates, credit scores, and terms of the loans.

Private Money Loans

Another option if you need a loan to purchase a real estate property is a private money loan. This type of loan is available from private investors willing to extend loans to people who want to buy real estate.

You’ll be able to work with the private investor to establish the loan terms. If you want to go this route, you’ll want to look for a private lender that offers the most favorable terms.

Seller Financing

If you go to your favorite search engine and type in “rental loans near me,” you may find a seller financing option. It’s an option offered by a seller who wholly owns the properties up for sale.

It’s something to consider if the real estate market in your neck of the woods is such that you’re finding it hard to get conventional financing. You and the lender will negotiate the loan terms, so there’s some built-in flexibility.

Home Equity Line of Credit

Yet another option to get the funds you need to buy rental properties is a home equity line of credit (HELOC). It’s a way to use some of the equity in a property to invest in another property.

You can typically borrow home equity in the range of between 75% and 80%. The precise amount will be determined by the lender you’re working with.

There Are Different Ways to Achieve Your Goals

If you’re interested in buying some rental properties but don’t have the funds to buy assets outright, there are rental property loans available.

It’s important that you carefully assess your options before selecting a loan. You’ll want competitive rates, a personalized experience, a variety of options, and great customer service.

At LendSimpli, we believe that private lending can and should be simple. We specialize in lending to real estate investors like yourself. So get in touch to learn how we can help you achieve your real estate investing goals.