Ways of real estate financing in the modern environment

Investors should look for creative ways to grow their businesses by considering various financing options that suit their needs and credit records. Speaking to a financial advisor also helps in choosing the best financing option.

last updated Friday, April 11, 2025
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by John Burson

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Real estate investors usually have many decisions when acquiring and selling property. Choosing an ideal financing method remains critical to your business's success. Investors do not need to have much money but should acquire in-depth knowledge of the financing options available.

Below are some of the ways to finance real estate investments:

Hard Money Loans

Small private companies give hard money loans based on the value of the property they use as collateral rather than the borrower's credit history. The interest rates vary between 8-15%, while their term lengths go between 6 to 36 months for short-term and five or more years for longer terms. The loan processing may take a few days to one week at maximum.

All Cash

Investors use 100% of their income to finance real estate investments without borrowing. The investor may use different methods to pay the cash, including writing a check or wire transfer from the bank.

Conventional Mortgage

The homebuyer's loan originates from credit unions, banks, and mortgage brokers and comes with low interest rates. Most loans require a borrower to pay a 20% minimum down payment.

Portfolio Lenders

Portfolio lenders use their funds entirely to support real estate investment. The portfolio lenders provide flexible loan terms and less restrictive qualifications.

FHA Loans

The United States government runs the Federal Housing Administration program to ensure bank mortgages. The government limits the loans to residential buyers, but an investor can get up to 4 separate units to live in one unit while using the others as investments.

203K Loans

The loan is similar to an FHA loan, with the only difference being that the 203K one allows the homeowner to buy a house that requires renovations. The loan finances the home repairs and improvements.

Owner Financing

The property owner funds its acquisitions, and then the investor will make monthly payments to the seller. The seller, however, should not have any existing mortgage on the property.

Private Money

This one is similar to hard money, with the only difference being that the lender is an individual looking to have higher returns on their capital. It has fewer fees and points, and both parties negotiate the terms.

Home Equity Loans and Lines of Credit

Investors use the equity of their primary home to finance the acquisition of an investment property. The investors get a percentage of their home's total value, but lenders' rates vary.

Partnerships

An equity partner is ideal for financing an investment, but the price range exceeds your budget. The partners make preliminary plans on the key decision-maker and split the profits and financing options.

Commercial Loans

A commercial loan is ideal for anyone looking to buy a property other than a residential property. The loan has higher interest rates and fees, shorter loan terms, and different standards for qualification.