Alternative Rental Property Financing – Securing the Best Funding in 2023

If you are a real estate investor seeking funding for your next purchase, you might be wondering what you can do if you're turned down for a typical mortgage. Fortunately, there are various innovative rental property financing options available to creative real estate investors looking to purchase their next property.

Rental Property Financing

Prospective real estate investors frequently believe that obtaining a mortgage is the only option to acquire a property. After all, most home purchases are made using mortgages backed by and supported by multinational corporations.

On the other hand, banks are frequently hesitant to grant several mortgages, especially if you’re new to real estate investing. You might find it challenging to obtain a typical mortgage based on your credit history, currently available assets, and investing track record.

If you are a real estate investor seeking funding for your next purchase, you might be wondering what you can do if you’re turned down for a typical mortgage. Fortunately, there are various innovative rental property financing options available to creative real estate investors looking to purchase their next property.

However, before we dive into the world of rental property financing, click the link below to book a free strategy call with our team here at LendCity today.

Increasing Loan Eligibility For Rental Property Financing

If you’re worried about acquiring a mortgage, think about how you can improve your eligibility before you start the application process. Working to improve your mortgage candidate status before applying for a loan will dramatically improve your chances of getting approved.

Check out a few things below you can do to make yourself a more attractive mortgage candidate and attract lenders’ attention:

Improve your credit score

Examine your credit score to see whether it requires improvement. If your credit score is below 740, lenders will evaluate your application closely. Furthermore, if your credit score is low, you’ll almost certainly pay a higher interest rate or extra costs.

Offer to make a higher down payment

Making a significant down payment reduces the amount of money you’re borrowing in the form of a mortgage, lowering the amount of risk the lender takes on. If you’re having trouble being approved for a loan, try raising the size of your down payment (if you have the capital).

Minimize the existing debt

When your debt-to-income ratio is too high, lenders will be hesitant to lend you money. The majority of banks set a debt-to-income ratio restriction of 40 percent to 50 percent. Reducing your current debt load might make your application appear less hazardous while also helping to improve your credit score.

Look for funding locally

Big, big, corporate banks are rarely the most incredible places to find rental property financing for your real estate project. Instead, apply to a locally owned banking institution or go to a credit union with your business. They might be able to offer you more inventive or flexible rental property financing terms. You will also be contributing to your community’s economy.

Discover How To Apply For An Investment Property Mortgages With This Step By Step Guide

Alternatives to a Mortgage for Rental Property Financing

If you are still having trouble getting a mortgage despite working on strategies to enhance your eligibility, it’s time to look into nontraditional mortgage choices.

Traditional mortgages, it should be noted, aren’t always the best investment vehicle. A more innovative mortgage product tailored for investment in a particular class of real estate asset may be better suited for you in some cases. Some of these options may actually help you attain your financial goals more rapidly, depending on your needs as an investor. Examine all of your financial options carefully to ensure you’re taking the right course of action. Keep your long-term investing goals in mind at all times. If you’re a real estate investor, you should consider the following mortgage options:

Owner financing

Many sellers are now prepared to offer owner rental property financing because it permits them to claim costs that a bank would otherwise charge. Consult a real estate lawyer about drafting a potential owner rental property financing agreement to deliver to the seller along with your purchase offer.

Hard money loans

These loans are created exclusively for real estate investment. Rather than focusing just on your credit score, hard money loans assess the worth of the property you want to buy. Hard money loans are only applicable for a few months, up to 36 months. What’s the drawback? They have incredibly high-interest rates attached to them.

Private money loans

These loans are not issued by a regular financial institution but by a private investor seeking a high return on their investment. Private money loans are often obtained from family members, friends, or other local real estate investment community members.

Home equity loans

You may be qualified for a home equity loan if you have built up equity in your home or another investment property (HEL). This enables you to borrow against your home’s equity to fund another real estate asset acquisition. HELs are one-time loans with a pre-determined interest rate and the repayment period.

Commercial investment property loans

You will not be able to acquire a mortgage for business real estate, so you’ll need a commercial investment property loan instead. Because commercial real estate is generally more expensive than residential real estate, you’ll need a strong credit score and a well-thought-out business strategy to be considered.

Fix and flip loans

Fix and flip loans are a sort of hard money loan typically issued by financial institutions and online lenders. These loans have incredibly high-interest rates and short repayment terms. However, if you plan to flip a house, they may provide more flexibility than long-term rental property financing choices.

There is no shortage of lending alternatives available to innovative and motivated real estate investors to make the real estate industry accessible. While standard mortgages may be out of your price range right now, there are undoubtedly other rental property financing solutions available to help you finance your next purchase and start earning passive income.

Successful real estate investors are typically distinguished from others who barely break even by their creativity and ability to think outside the box. You may dominate your target market and create your unique vision for your financial future by understanding how to take advantage of the most strategic chances accessible to you.

Ensure the loan you’re considering is the proper one for you, whether it’s a mortgage or another type of loan. Regardless of where the investment comes from, it must be backed by the correct terms. The last thing you will ever want is to overstretch yourself and endanger your investing prospects!

Investor Mortgages and Rental Property Financing

When your looking for financing it’s important to note there are three major types of lenders for rental properties. 

Some lenders like banks and most major lenders will use only 50% of the rent to help you qualify for your mortgage.

Next, some credit unions will use 80% of the rent, to help you qualify for your mortgage.

Lastly, there are a few credit unions or commercial lenders that allow you to use 100% of the rental income to qualify for a mortgage.

You should select the property lender to work with based on your debt ratios or the cash flow of the property. It’s may be hard to find out which lender does what on your own. If in doubt, we recommend you contact our team at LendCity Mortgages at 519-960-0370. We can help you to ensure your qualifying for properties. Alternatively, click the link below to book a free strategy call with our team at LendCity today.

Tips For Financing Your Investment Without A Traditional Mortgage, With Scott Dillingham