Types of Rental Property Financing

Residential rental property financing can provide investors with a consistent stream of income. The types of properties that qualify for this type of financing include 1-4 unit SFRs and condos. Interest rates, loan lengths and credit score requirements can vary by lender.


Lenders consider financials such as expected rental income, operating expenses, vacancy rates and cash flow when making lending decisions. Borrowers must also have significant cash reserves to cover mortgage payments and other unexpected expenses.

Blanket Loans

When real estate investors think of getting financing for an investment property, they usually picture a residential or commercial mortgage. However, a blanket loan is a different type of mortgage that can provide financing for many properties at once. These loans are typically used by real estate developers and investors who manage multiple pieces of property.

These loans are more convenient for borrowers than traditional mortgages, as they can finance many investment properties at once. They also tend to have lower interest rates and lower monthly payments than traditional mortgages. They can even be negotiated with a balloon payment structure, which allows borrowers to pay less upfront and more later on.

While the advantages of these loans are clear, it is important to understand that they pool a certain amount of risk for lenders. Because each property acts as collateral for the others, if the borrower defaults on one, all of the properties will be at risk of being seized. However, lenders can mitigate this by including something called a release clause in the loan documents.

In order to qualify for a blanket loan, it is crucial that borrowers have all of the necessary information on hand before applying for the mortgage. This will include credit reports, property appraisals, and personal financial information. Lenders will also want to see proof of net operating income if rental properties are included in the loan.

Portfolio Loans

For investors with five or more residential rental properties, a portfolio loan is an alternative to individual property mortgages. This type of financing allows borrowers to consolidate multiple loans into one single loan, typically with a rate-and-term refinance option or the ability to unlock equity by doing a cash-out refinance. This can reduce the number of mortgages a borrower needs to manage and can result in significant cost savings in closing costs, monthly payments, and overall borrowing costs.

These types of mortgages are also more flexible, focusing on the property’s performance and cash flowing characteristics rather than the borrower’s credit metrics. This makes it easier to obtain a loan with a higher LTV if the property is located in a strong market, for example.

Additionally, a portfolio loan may allow for greater lending limits if the borrower meets certain requirements. These can include having a stable employment history, being self employed or having an acceptable business plan that shows your ability to make a return on the investment. This can be especially helpful if you have a tarnished credit history or previous foreclosures that would prevent you from getting conventional financing.

When it comes to obtaining these types of loans, working with an experienced broker who specializes in the mortgage industry can make all the difference. A broker can help you understand the options available and get your application in front of lenders who are interested in your unique situation.

Home Equity Line of Credit

Home equity lines of credit (HELOC) are another way to leverage the value of your property. While HELOCs are usually reserved for primary homeowners, they can also be used to finance rental properties. In fact, some landlords may need to spend a sizable chunk of cash on maintenance or renovations to make their investment more profitable and attractive to tenants.

When choosing to use a HELOC for a rental property, you should carefully weigh your options and consider factors like loan terms, interest rates, fees and potential property value appreciation. It is important to understand that a home equity line of credit requires the borrower to use their home as collateral and could lose their home if they fail to make payments.

A lender will assess your eligibility for a home equity line of credit on a rental property by reviewing your credit history and current mortgage balance, along with other qualifying information. The lender will then review your income, assets and debt-to-income ratio to determine how much you can borrow. Once approved, you will receive a HELOC with an initial draw period during which time you can withdraw funds as needed. Once the draw period ends, you will enter a repayment phase that can last 10 or more years. During the repayment phase, you will make monthly principal and interest payments on the amount borrowed.

Hard Money Loans

Hard money loans are often used by real estate investors and builders who are looking to buy and fix up properties quickly in order to resell them. These lenders focus less on a borrower’s credit history or income and more on the property’s value and what it will be worth after renovation. These loans tend to have higher interest rates than traditional financing options, but they can provide quick access to capital when needed most.

If you’re considering using a hard money loan to finance one of your rental properties, it’s important that you do your homework and find a lender that works well with your business model. Different lenders offer various fees, rates and requirements for borrowers. For example, some lenders require a minimum credit score of 680 while others don’t. And some require a third-party appraisal while others use a Broker Price Opinion (BPO) or other methods to determine the lending value of a property.

It’s also important to know how you’ll repay the loan before proceeding with it. If you don’t meet the repayment terms of your loan, it could result in foreclosure, even if you’ve performed significant work on the property. The best way to avoid this is by planning ahead and working with a knowledgeable lender like Visio Lending.