Real Estate Financing FAQ
11 frequently asked questions about real estate investment financing: hard money, DSCR loans, seller financing, subject-to, bridge loans, and portfolio loans.
What is hard money lending in real estate?
Hard money is short-term, asset-based financing from private lenders. Terms: typically 12 to 18 months, interest rates 10 to 14%, origination fees 1 to 3 points. Lenders qualify primarily on the property's ARV and your equity position, not your credit score or income. Designed for fix-and-flip and BRRRR acquisitions that don't qualify for conventional financing.
What is a DSCR loan?
A Debt Service Coverage Ratio (DSCR) loan qualifies the borrower based on the rental property's income rather than personal income. DSCR = monthly rent divided by monthly mortgage payment. Most lenders require 1.20+. Ideal for self-employed investors, high earners with many properties, or anyone who wants to scale beyond conventional loan limits.
What is the difference between a hard money lender and a private money lender?
Hard money lenders are companies that lend as their primary business: organized, consistent, predictable terms. Private money lenders are individuals (friends, family, high-net-worth contacts) lending personal capital. Private money often has lower rates and more flexible terms because the relationship is direct; hard money is faster to access because it's institutional.
What is a bridge loan in real estate?
A bridge loan is short-term financing used to bridge the gap between acquiring a property and securing permanent financing. Common uses: buying before selling a current property, funding renovation before refinancing into a DSCR loan, or closing fast on a competitive deal while conventional underwriting is underway.
What is seller financing and how does it work?
Seller financing (owner financing) is when the property seller acts as the lender. You make monthly payments directly to the seller, who holds a promissory note and deed of trust. No bank qualification required, faster close, flexible terms. Works best when the seller owns free and clear or has significant equity.
What is subject-to financing in real estate?
Subject-to means buying a property while leaving the seller's existing mortgage in place. You take title to the property but the seller's loan stays in their name, and you make the payments. The main risk is the due-on-sale clause, which allows the lender to call the loan due if they discover the ownership transfer.
How many conventional investment property loans can I have?
Conventional Fannie Mae/Freddie Mac loans allow up to 10 financed investment properties per borrower. Beyond that, use portfolio loans, DSCR loans, or commercial financing. Requirements and rates vary by lender for properties 5 to 10.
What is a portfolio loan?
A portfolio loan is kept by the originating lender on their own books rather than sold to Fannie/Freddie. Because it's not subject to agency guidelines, it can be more flexible: higher LTV, alternative income documentation, properties held in LLCs, or non-standard deal structures. Community banks and credit unions are the most common portfolio lenders.
What is delayed financing in real estate?
Delayed financing allows an investor who bought a property with cash to pull that equity out via a cash-out refinance shortly after closing, without the standard 6 to 12 month seasoning requirement. Requirements: documented cash purchase, property must appraise, no liens, and the new loan cannot exceed the original cash purchase price plus documented closing costs.
What is a blanket mortgage?
A blanket mortgage (or blanket loan) is a single loan secured by multiple properties. Rather than a separate mortgage on each rental, one loan covers the entire portfolio. Simplifies management, but includes partial release clauses: selling one property requires paying down a portion of the blanket loan.
What origination points are charged on hard money loans?
Typically 1 to 3 points (1 point = 1% of the loan amount). On a $200,000 loan at 2 points, you pay $4,000 upfront at closing. Points are in addition to the interest rate and are key to calculating your true cost of capital on a flip or BRRRR deal.