The Most Common Types of Loans for Real Estate Investors
Real estate investing can build substantial wealth, but many investors need financing at some point. Unlike traditional homebuyers, real estate investors have access to specialized loan products designed for investment properties.
These are the most common types of loans for real estate investors, each offering excellent terms for property owners who need additional cash flow.
Conventional Investment Property Loans
Conventional loans from banks and credit unions are the most popular choice for real estate investors. These loans follow guidelines set by Fannie Mae and Freddie Mac, offering predictable terms and competitive rates for qualified borrowers.
Investment property conventional loans typically require 20–25% down payments, which are significantly higher than owner-occupied properties. These loans work best for investors with strong credit profiles who plan to hold properties long-term. The application process takes 30–45 days, making conventional loans less suitable for competitive markets where quick closings matter.
Hard Money Loans
Hard money loans provide fast financing secured by real estate value rather than borrower creditworthiness. Private lenders or investor groups fund these short-term loans, typically lasting 6–24 months.
Hard money lenders can approve and fund loans within days, making them ideal for auction purchases, fix-and-flip projects, or competitive bidding situations. Real estate investors commonly use hard money loans as bridge financing. They purchase and renovate properties with hard money, then refinance into conventional loans once improvements are complete.
Private Money Loans
Private lenders might include friends, family members, other real estate investors, or individuals seeking higher returns than traditional investments provide. These arrangements offer maximum flexibility in terms, structure, and approval criteria.
Terms are negotiated directly between parties, allowing for creative structures that benefit both the borrower and lender. Private money credit decisions vary based on the relationship, risk level, and local market conditions.
Portfolio Loans
Portfolio loans come from banks that keep mortgages on their books instead of selling them to government-sponsored enterprises. This approach allows banks to create their own underwriting guidelines, often resulting in more flexible terms for borrowers.
Local and regional banks frequently offer portfolio loans to build relationships with real estate investors in their market areas. They may accept lower credit scores, higher debt-to-income ratios, or unique property types that don’t meet conventional loan standards. These loans particularly benefit investors who own multiple properties.
Commercial Loans
Commercial loans finance larger investment properties or multiple properties bundled together. Commercial lenders evaluate both the borrower’s financial strength and the property’s income-generating potential.
Terms on commercial loans differ from residential financing. Loan periods often range from 5–20 years, with many featuring balloon payments requiring refinancing. Interest rates may be fixed or variable, depending on the loan structure. These loans suit investors with substantial portfolios or those purchasing larger properties.
The most common types of loans for real estate investors offer key benefits that are not available elsewhere. The best type depends on your investment strategy, financial situation, and the state of the property.
