When financing real estate, there are two main options for lending sources: residential lenders and investment property lenders. While there is some overlap, these two categories of lenders have distinct differences that investors should understand when seeking funding for buy-and-hold real estate.
Residential lenders primarily provide loans for owner-occupied homes, secondary homes, and 1-4 unit multi-family properties. Their expertise is in mortgages for personal housing needs. Most residential lenders are banks, credit unions, and mortgage companies.
Lenders for investment properties specialize in financing for properties that will generate rental income, whether multi-family, commercial, or single-family rentals. These lenders understand investor needs. Many are private finance firms, portfolio lenders, or peer-to-peer lending platforms.
Here are some key differences between the two types of lenders:
Investment property lenders offer loan products specifically designed for investors, such as bridge loans, blanket loans, and rental portfolio mortgages. Residential lenders stick to common home loan programs like 30-year fixed mortgages.
Investment lenders place more weight on the property’s cash flow, looking at debt service coverage ratio and loan-to-value metrics. Residential lenders qualify buyers based on personal income and credit scores.
Residential lenders typically require 10-20% down for primary homes and 15-25% for second homes. Lenders for investment properties may only require 15-25% down across the board. More equity is often needed for residential purchases.
Investment property loans may have slightly higher interest rates due to the increased risk lenders take on rentals versus owner-occupied homes. However, for strong applications, rates can be competitive.
Residential lending has conforming loan limits set by Fannie Mae and Freddie Mac. Investment loans do not, so lenders can accommodate large commercial or portfolio loans over $510,400.
Residential lenders are constrained to single-family homes and small multi-family. Investment lenders can finance large apartment buildings, retail centers, industrial properties, and specialty assets.
Residential lenders require appraisals and property inspections prior to funding. Investment lenders may use alternative valuation methods or be more flexible on inspections.
Residential lenders are accustomed to serving home buyers and consumers. Investment lenders understand the needs of seasoned real estate investors with large portfolios.
As an ambitious real estate investor, it pays to find a lender who specializes in financing investment properties. Their loan products, underwriting, and overall expertise will align better with your goals of generating portfolio income and returns.
At Sentry Capital Group, our private commercial lending team lives and breathes real estate investment finance. We offer bridge loans, rental portfolio loans, and construction loans designed specifically for investors. Our local experts understand each market and can get your deals funded smoothly and efficiently.
Whether you're an industry veteran or an emerging investor looking to scale your rentals, Sentry has the sophisticated financing solutions to turn your vision into reality. Let's connect today to discuss how we can strategically finance your next investment acquisition or development project. Your success is our bottom line.
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