Real estate investing requires understanding the financial tools available to maximize returns and minimize risks. Investors often focus on hard money or private loans, but there’s an entire universe of mortgage options that could offer better terms, save money, and improve profitability. Brandi Wittmeyer, known as “The Mortgage Master,” shared her insights based on 19 years of experience in lending and real estate investing. In this guide, we’ll break down key loan options, myths, and strategies for investors looking to optimize their financing.
The Basics of Traditional Loan Products
A traditional loan typically refers to a 30-year fixed mortgage. These loans are backed by institutions like Fannie Mae or Freddie Mac, or government programs such as FHA, VA, and USDA. For investors, conventional loans are often the go-to option when financing long-term rental properties.
Conventional Loans for Investors
Conventional loans require investors to meet specific criteria:
- Down Payment: A minimum of 20% down is standard.
- Credit Score: A good credit history is critical, with scores above 680 being ideal.
- Debt-to-Income Ratio (DTI): Lenders assess your ability to repay by comparing your income to your monthly liabilities.
However, these loans work best for seasoned investors who can meet stricter underwriting guidelines. If you’re new to investing or don’t meet these strict requirements, other options may work better for you.
Why Hard Money Loans Are Popular
Hard money loans are a common choice for investors who lack cash or need to close deals quickly. These loans are secured by the property and evaluated based on its after-repair value (ARV).
Pros and Cons of Hard Money
Advantages:
- Fast approval (sometimes within days).
- Ideal for properties in need of major repairs.
Disadvantages:
- High-interest rates, often 10-15%.
- Significant upfront fees, known as “points.”
- Short loan terms, usually 6-12 months.
Hard money can work for quick flips but becomes costly if you hold the loan for too long.
Transitioning from Hard Money to Long-Term Financing
Once you’ve purchased and rehabbed a property using hard money, you may want to hold it as a rental. This is where refinancing into a more affordable loan product comes in.
Investors can refinance into a conventional mortgage or other tailored loan products. Brandi Wittmeyer noted that as long as the property has 25% equity, refinancing is a fairly straightforward process. Upon refinancing, leftover equity can also be cashed out to reinvest in new opportunities.
Exploring the BRRRR Strategy
The BRRRR method is one of the most effective strategies for scaling a real estate portfolio. It stands for Buy, Rehab, Rent, Refinance, Repeat. Here’s how it works:
- Buy: Purchase undervalued properties at deep discounts.
- Rehab: Improve the property with repairs or upgrades to increase value.
- Rent: Secure tenants to generate cash flow.
- Refinance: Replace short-term financing with a long-term loan, ideally pulling cash out.
- Repeat: Use the cash to fund your next investment.
This cycle allows you to continually roll your returns into new projects, building wealth efficiently.
Non-Traditional Loan Options for Investors
Bank Statement Loans
If you’re self-employed or rely on irregular income, a standard mortgage based on W-2 earnings may not work for you. Bank statement loans can fill this gap. Instead of income or tax returns, lenders evaluate cash flow by reviewing your bank statements.
Requirements:
- Proof of consistent deposits over 12-24 months.
- Down payments as low as 20-30%.
These loans are excellent for entrepreneurs who reinvest heavily in their businesses.
Asset-Based Lending
For investors who own income-producing properties or have significant assets but low monthly income, asset-based lending is another option. These loans focus on the property’s value and income potential rather than personal financials.
Key Benefits:
- Low documentation requirements.
- Approval based on the property’s income vs. the borrower’s personal DTI.
This is an excellent solution for seasoned investors with complex financial profiles.
The 90-Day FHA Flip Rule: What You Need to Know
If you’re flipping homes, you’ve likely encountered the FHA’s 90-day rule. This regulation prevents a buyer using FHA financing from purchasing a flipped property within 90 days of the seller’s purchase date.
To work around this, investors who flip homes can:
- Wait until day 91 to accept FHA offers.
- Market the property to buyers using conventional or VA loans.
- Proactively communicate with the buyer’s agent and lender about timelines.
The key is to plan ahead so timelines align with FHA rules and avoid unnecessary delays.
VA Loans: A Hidden Gem for Veteran Investors
VA loans offer unparalleled benefits to eligible veterans, including no down payment, no private mortgage insurance (PMI), and competitive interest rates. While a VA loan can’t be used directly for investment properties, it’s a powerful tool for wealth-building.
Veterans can use VA loans to:
- Purchase their primary residence.
- Refinance and cash out equity for investments.
- Utilize any remaining entitlement to purchase another property.
Additionally, some lenders allow VA-backed borrowers to refinance up to 100% of their home’s value in certain states, providing even more flexibility.
Loan Options for Borrowers Without Social Security Numbers
For non-citizens without a Social Security Number, ITIN loans and foreign national loans offer solutions. These loans cater to borrowers with Individual Taxpayer Identification Numbers (ITINs) or valid visas but often require larger down payments (generally 30-40%).
Debunking Common Loan Myths
Many investors avoid certain loan types due to misinformation. Let’s address some of the myths:
- Myth: VA loans are slower and more difficult to close.
- Truth: VA loans close on the same timeline as other loans when handled correctly.
- Myth: FHA loans impose higher seller costs.
- Truth: There is no added expense to the seller for FHA deals.
By working with an experienced lender, these concerns can be easily managed.
Why Choosing the Right Lender Matters
Your loan officer should be more than just a contact—they’re a crucial member of your team. Brandi Wittmeyer emphasizes the importance of full transparency. Share your financial situation, plans, and goals upfront so your lender can create a roadmap to approvals and funding.
Lenders with specialized experience in real estate investing can explore creative solutions, such as portfolio loans, renovation lending, or short-term bridge loans, that many banks won’t even consider.
Conclusion
Understanding and utilizing the right loan products can transform your real estate investing success. From conventional loans to renovation financing, VA options, and asset-based loans, the possibilities are vast when you work with the right team.
If you’re looking to grow your portfolio or improve your financing strategy, consult with a knowledgeable lender like Brandi Wittmeyer who can navigate the complexities of investor-focused loans with ease. Always remember—having the best loan setup isn’t just about rates, it’s about creating opportunities for long-term growth.
