Being a professional real estate investor, I’m often a sounding board for friends and family who are thinking about purchasing an investment property. They confidently lay out their ideas, but once we start talking nitty-gritty, like how to get an investment property loan, their self-assurance waivers. 

It’s not an uncommon misconception that banks are the place to go for funding real estate investment deals. Time and again, I’ve come across new-to-the-game real estate investors who get excited about a potential property, only to lose either the deal or their returns because they made the mistake of trying to get the wrong type of funding. That’s why it’s important to understand all your options before you dive headfirst into investing. 

Your Traditional Investment Property Loan Options

For many inexperienced real estate investors, getting a home rehab loan on a distressed house without breaking a sweat isn’t going to happen. First of all, most banks will only loan on the current value of a house—not what it will be worth after you renovate. That means, all the money for the rehab will have to come out of your pocket. 

But, there are two investment property loan options from banks that actually do cover both the purchase and rehab. You’ll need to decide if you’re willing to put up with all the red tape, though. Let me share what I tell my would-be investor friends and family about these options. 

Fannie Mae Homestyle Loan

Fannie Mae Homestyle Loans are probably the most known of investment property loans offered by banks. They can have either fixed or adjustable interest rates and terms from 15 to 30 years. You’re allowed to borrow up to 85% of the after-repair value of the property. And, you aren’t limited in what renovations you can spend your money on as long as you’re adding value to the house. Sounds pretty reasonable, right? 

But, the devil is in the details, as they say. Here are the three biggest downsides:

1. Inaccessibility

The Fannie Mae Homestyle Loan isn’t widely available since brokers that offer them have to meet strict requirements. They also have to have experience issuing loans for renovations. So, good luck finding someone to walk you through the process of even applying.  

2. Tight timeline

Fannie Mae also places a deadline on when the renovations have to be complete—12 months. That may seem like a long time, but if it’s your first rehab, you are likely to come across any number of snags that delay your project. 

3. Restrictive Oversight

Forget about trying to save some money by doing the work yourself. The Fannie Mae Homestyle Loan is very restrictive about who can work on the property. You have to hire a contractor that is licensed and willing to submit plans and specifications before the loan is issued. That will inevitably limit the pool of contractors you can draw from.

FHA 203(K) Loan 

An FHA 203(K) loan allows you to borrow money for the purchase and renovation in one fell swoop. It’s also attractive because of the low down payment of 3.5% depending on your credit score. But, that’s about where the advantages end.

There’s a reason this is not a popular option. Not many lenders are out there that can issue FHA 203(K) loans and, if you do get lucky enough to find a broker, it can take a while to close on the loan—if you get that far. You’ll be up to your neck in paperwork while trying to find a property that fits their criteria. The worst part: the renovations have to be completed within six months. That’s a short period of time even for experienced investors if major repairs are required. And, while you’re hustling to get the rehab done, expect a lot of oversight with the lender visiting the property several times during the process.

After hearing all this, most of my friends and family who are interested in real estate investing feel as if they should just throw in the towel before they even get started. But, luckily, there is another option: getting a hard money loan.

Hard Money Loans Can Fund Your Real Estate Investment Deal

Hard money loans are secured by the investment property itself rather than just your FICO score. In considering whether to give you funding, they will primarily be asking these questions: Are you getting the property for a good price? Does your exit strategy make sense? How solid is the upside? If the numbers are right, you’re likely to get your funding.

And, it’s not hard to go through the process of getting the money, either. These types of loans don’t require you to fill out reams of paperwork and navigate a whole slew of rules and regulations. If approved, you can often have money in hand within a few days or weeks. You can often make interest-only payments for the term of the loan and pay it off in full when you sell the rehabbed property. 

As simple as it is to work with hard money, I’ll tell you something else that’ll make it even easier.

Secure a Hard Money Loan Even More Easily

I know how to get an investment property loan with just a few clicks on my iPad. You see, as an independently owned and operated HomeVestors® franchisee, I have direct access to some of the best hard money lenders nationwide. All I have to do is type the terms of my deal into UGVilleSM and, often within minutes, these lenders reach out to me with financing offers. You see, they actually compete for my business and I can choose the terms that make the most sense for my deal. No lengthy paper trail, no waiting, and wondering, no sweat. 

Ready to start professionally investing in real estate with hard money backing? Request more information about the benefits of being a HomeVestors® franchisee today. 

Each franchise office is independently owned and operated.