Understanding Financing Options

Best For: Primary residence or first few investment properties

Requirements: - 15-25% down for investment properties - 620+ credit score (740+ for best rates) - 2+ years employment history - Debt-to-income under 45% - Cash reserves (2-6 months payments)

Pros: - Lowest interest rates - 30-year fixed options - Up to 10 financed properties allowed

Cons: - Strict qualification requirements - Lengthy documentation - Rental income discounted 25% for qualification - Becomes harder after 4+ properties

FHA Loans (For Primary Residence Only): - 3.5% down with 580+ credit - Allows 1-4 units if owner-occupied - House hack strategy: buy duplex, live in one, rent the other - Mortgage insurance required - Can convert to rental after 1 year

VA Loans (Veterans Only): - 0% down payment - No mortgage insurance - Allows up to 4 units if owner-occupied - Best terms available for qualifying veterans - Can be used multiple times

Strategy: Use FHA/VA for your first property, live there while saving for your next conventional investment purchase.

Portfolio Loans (Kept by Lender): - Not sold to Fannie/Freddie - More flexible qualification - Asset-based lending possible - Higher rates than conventional - Great for self-employed or complex situations

DSCR Loans (Debt Service Coverage Ratio): - Qualify based on property cash flow, not personal income - DSCR = Net Operating Income ÷ Debt Payments - Typically need 1.0-1.25x coverage - Perfect for scaling investors - No tax returns required - Higher rates (7-9% typical) - 20-25% down required

When to Use DSCR: - Maxed out conventional loans - Self-employed with complex taxes - Scaling quickly - Building investment business separate from personal finances

Hard Money Loans: - Asset-based, not credit-based - 65-75% of ARV - 2-4 points upfront - 10-15% interest rates - 6-24 month terms - Fast closing (1-2 weeks)

Best Used For: - Fix and flip - BRRRR acquisitions - Auction purchases - Bridge financing - Distressed property purchases

Private Money: - Loans from individuals - Negotiable terms - Relationship-based - Often friends, family, or network contacts - Can be very flexible - Build trust with track record first

Exit Strategy Required: Always know how you'll refinance or sell before using short-term financing.

Seller Financing: - Seller acts as the bank - Negotiate terms directly - Often 5-10 year balloon with monthly payments - Great for properties that won't qualify traditionally - Typically higher down payments

Subject-To: - Take over existing mortgage - Seller's loan stays in place - You control the property - Risky if due-on-sale clause triggered - Requires experienced guidance

Lease Options: - Control without ownership - Option to buy at set price - Portion of rent applies to purchase - Time to improve credit or save down payment

Partnerships: - Combine resources with others - One partner provides capital, other manages - Split profits accordingly - Get legal agreements in writing - Great for scaling faster