Investor Financing – MortgageLoans

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Investment Property Mortgage Rules Foundational rules for financing rental and investment properties. DSCR Loans Explained Qualify based on property cash flow, not personal income. Multi-Unit Property Financing (2-4 Units) Financing duplexes, triplexes, and fourplexes as an owner-occupant or investor.

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1031 Exchange and Mortgage Implications A 1031 exchange allows real estate investors to defer capital gains taxes by reinvesting sale proceeds into a like-kind replacement property within strict timelines (45 days to identify, 180 days to close). The mortgage implications include debt replacement requirements to avoid taxable boot, coordination between the qualified intermediary and the lender, and the need to secure financing within the exchange timeline. Cash-Out Refinance on Investment Property A cash-out refinance on an investment property replaces the existing mortgage with a larger loan, delivering the equity difference as cash at closing. Conventional guidelines cap the loan-to-value at 75% for single-family and 70% for 2-4 unit investment properties, with a six-month minimum ownership seasoning period and interest rate premiums above primary residence refinance rates. DSCR Loans Explained DSCR (Debt Service Coverage Ratio) loans are non-QM mortgages for investment properties that qualify the loan based on the property's rental income relative to its mortgage payment, rather than verifying the borrower's personal income. A DSCR of 1.0 means rent equals the payment; lenders typically require a minimum of 1.0 to 1.25, with better pricing for higher ratios. Fix-and-Flip Financing Fix-and-flip financing encompasses the short-term loan products used to acquire and renovate distressed properties for resale, including hard money loans, bridge loans, private money, and portfolio renovation loans. These products are structured around after-repair value (ARV) lending, draw schedules for renovation disbursement, and short hold periods of 3-12 months, with exit strategies of sale or refinance into permanent financing. Hard Money Loans for Real Estate Investors Hard money loans are short-term, asset-based loans provided by private lenders that prioritize the property's value and the borrower's equity position over personal income verification. Typically carrying interest rates of 9-14%, origination fees of 1-5 points, and terms of 6-24 months, these loans serve investors who need speed, flexibility, or financing for properties that do not qualify for conventional lending. Investment Property Mortgage Rules Investment property mortgage rules encompass the specific underwriting requirements that apply when financing non-owner-occupied real estate through conventional agency-backed loans. These rules include higher down payments (15-25%), elevated interest rates through loan-level price adjustments, stricter reserve requirements (six months PITIA), rental income offset calculations at 75% of gross rent, and a maximum of 10 financed properties under Fannie Mae guidelines. LLC Ownership and Mortgage Qualification LLC ownership and mortgage qualification addresses the interaction between holding investment property in a limited liability company and obtaining mortgage financing. Most residential loan programs require individual borrowers, while DSCR and portfolio loans accommodate LLC vesting, and transferring property to an LLC after closing on a conventional loan carries due-on-sale clause risk. Multi-Unit Property Financing (2-4 Units) Multi-unit property financing covers the mortgage rules, down payment requirements, rental income treatment, and appraisal considerations for properties with two to four residential units. These properties are eligible for residential loan programs (conventional, FHA, VA) with modified underwriting standards, and they serve as a common entry point for investors through owner-occupied house hacking strategies. Portfolio Loans for Real Estate Investors Portfolio loans are mortgage products retained on the originating lender's balance sheet rather than sold to the secondary market, freeing the lender from Fannie Mae and Freddie Mac underwriting constraints. They provide flexible financing for investors who exceed conventional property count limits, purchase through LLCs or entities, or have non-standard income documentation, at the trade-off of higher rates, shorter terms, and potential balloon payment provisions. Rental Property Down Payment Requirements Rental property down payment requirements are significantly higher than primary residence requirements, with conventional investment loans requiring 15% minimum for single-family and 25% for 2-4 unit properties. The exact amount varies by loan type, unit count, occupancy status, and lender, with DSCR loans typically requiring 20-25% and portfolio lenders setting their own thresholds based on borrower relationship and property strength. Scaling a Rental Portfolio with Financing Scaling a rental portfolio with financing involves navigating the transition from conventional conforming loans (limited to 10 financed properties) to DSCR, portfolio, blanket, and commercial loans as the investor adds properties. Each financing tier has different qualification criteria, costs, and limitations, and successful scaling requires deliberate reserve management, entity structuring, and lender relationship strategies. Short-Term Rental (Airbnb) Income for Mortgages Short-term rental (Airbnb) income for mortgages refers to the use of revenue from short-term guest rentals to qualify for a mortgage loan. Lenders treat STR income with greater skepticism than long-term rental income due to seasonality, regulatory risk, and documentation complexity, and the available financing options vary from restricted agency conforming loans to more flexible DSCR products.

Frequently Asked Questions

How much do I need to put down on an investment property?

Conventional investment property loans typically require 15-25% down depending on the number of units and whether it is a single-family or multi-unit property. DSCR and portfolio loans may have different requirements.

What is a DSCR loan?

A Debt Service Coverage Ratio loan qualifies based on the property rental income relative to the mortgage payment rather than the borrower personal income. A DSCR of 1.0 or higher means the rent covers the payment.

Can I use rental income to qualify for an investment property mortgage?

Yes. Conventional loans allow 75% of documented rental income to offset the mortgage payment. DSCR loans use 100% of projected rent. The specific rules depend on whether the property has existing leases or uses market rent estimates.

Can I buy investment property in an LLC?

Most conventional and government loans require the borrower to hold title personally. DSCR loans, portfolio loans, and commercial loans often allow LLC ownership. Some borrowers purchase personally and transfer to an LLC after closing, though this may trigger a due-on-sale clause.

What is a hard money loan?

A hard money loan is a short-term, asset-based loan funded by private investors. It is used primarily for fix-and-flip projects or bridge financing. Rates are higher (typically 9-14%) and terms are short (6-24 months), but approval is faster and based primarily on property value.

How many investment properties can I finance?

Fannie Mae allows up to 10 financed properties per borrower. Beyond that, portfolio lenders and DSCR programs can finance additional properties. Each additional property typically requires more reserves.

What is a 1031 exchange?

A 1031 exchange allows investors to defer capital gains taxes by reinvesting proceeds from a property sale into a like-kind replacement property within specific timeframes (45 days to identify, 180 days to close). The exchange has specific mortgage and equity requirements.