A Broker’s Guide to the 6 Best Types of Rental Loans for Investors

As a broker, you understand that financing is often the greatest obstacle for your clients when investing in rental properties. In contrast to primary home loans, rental property loans present special challenges, such as higher down payments, tightened credit standards, and greater risk to lenders. But with proper guidance, you can guide your clients through these obstacles and obtain the financing they need to expand their portfolios.

In this blog, we'll segment the types of rental property loans out there and how you can assist your clients in selecting the optimal choice for their investment objective. From traditional loans to private money lenders, we'll run through everything you need to become a go-to advisor.

Rental Property Loans vs. Primary Home Loans: What’s the Difference?

Before diving into the types of loans, it’s important to understand how rental property loans differ from primary home loans. Here’s a quick comparison:

These differences are present since lenders consider rental properties to be riskier investments. After all, there's no assurance the property will make steady rental payments.

Your position as a broker is to assist your clients in comprehending these differences and prepare them to fulfill the more rigorous requirements of rental property loans.

6 Common Types of Rental Property Loans

Let’s dive into the most common types of rental property loans and how they can benefit your clients.

1. Conventional Mortgage Loans

Traditional loans are the most popular source of financing for rental properties. Private lenders such as banks and mortgage companies provide these loans according to Fannie Mae or Freddie Mac guidelines.

Why Brokers Love Conventional Loans:

• Wide Availability: Most lenders offer conventional loans, making them easy to access.
• Competitive Rates: While rates are higher than primary home loans, they’re often lower than other rental property loan options.
• Flexible Terms: Loan terms can range from 15 to 30 years, giving your clients flexibility.

How Brokers Can Help:

• Help your clients gather the necessary documentation, including proof of income, credit history, and cash reserves.
• Recommend lenders who specialize in rental property loans.

2. Private Money Loans

Private money loans are provided by private lending companies or individual investors. These loans are best for clients who do not qualify for traditional financing.

Why Brokers Love Private Money Loans:

• Flexible Terms: Private lenders can customize loan terms to fit your client’s needs.
• Fast Approval: Loans can be approved and funded in as little as a few days.
• Less Stringent Requirements: Private lenders may be more lenient with credit scores and debt-to-income ratios.

How Brokers Can Help:

• Connect your clients with reputable private lenders in your network.
• Highlight the benefits of private money loans, such as speed and flexibility.

3. Home Equity Loans (HELOCs)

For clients who possess a primary residence, a home equity loan or HELOC can be an excellent means of financing a rental property.

Why Brokers Love HELOCs:

• Low Interest Rates: HELOCs often have lower rates than other rental property loans.
• Access to Equity: Clients can tap into the equity they’ve built in their primary home.
• Flexible Use: Funds can be used for down payments, renovations, or other expenses.

How Brokers Can Help:

• Recommend HELOCs for clients with significant equity in their primary residence.
• Explain the risks, such as the potential loss of their home if they default on the loan.

4. FHA Loans

Government-backed FHA loans are excellent for multifamily properties. They are especially suitable for first-time buyers.

Why Brokers Love FHA Loans:

• Lower Down Payments: Down payments can be as low as 3.5%.
• Lower Credit Requirements: FHA loans are more accessible to clients with lower credit scores.
• Multifamily Focus: Clients can finance properties with up to four units, living in one while renting out the others.

How Brokers Can Help:

• Help clients understand the requirements, such as using one unit as a primary residence for at least one year.
• Recommend FHA-approved lenders.

5. Portfolio Loans

Portfolio loans are provided by banks or credit unions that retain the loans in their own portfolio instead of selling them to investors.

Why Brokers Love Portfolio Loans:

• Flexible Underwriting: Lenders can set their own guidelines, making it easier to qualify.
• Custom Terms: Loan terms can be tailored to fit your clients’ needs.
• No Resale Restrictions: Since the loans aren’t sold, lenders have more flexibility.

How Brokers Can Help:

• Connect your clients with local banks or credit unions that offer portfolio loans.
• Highlight the flexibility and customization options.

6. Hard Money Loans

Hard money loans are short-term, high-interest loans that are collateralized by the property itself. They are suited best for customers who require fast financing for fix-and-flip projects.

Why Brokers Love Hard Money Loans:

• Fast Funding: Loans can close in as little as 10 days.
• Collateral-Based: Credit history is less important than the property’s value.
• Short-Term: Perfect for clients who plan to sell or refinance the property quickly.

How Brokers Can Help:

• Partner with trusted hard money lenders like RCN Capital to offer your clients competitive rates and fast approvals.
• Explain the benefits of hard money loans, such as speed and flexibility.

It can be tricky to navigate the rental property loan world, but with proper guidance, your clients can get the financing they require to reach their investment objectives. By knowing the various loan options and assisting your clients in selecting the most suitable one, you can establish yourself as a trusted advisor while expanding your business simultaneously.

Why Brokers Should Choose RCN Capital

At RCN Capital, we know the special needs of real estate investors—and the brokers that serve them. Here's why brokers prefer to work with us:

• Flexible Programs: From fix-and-flip financing to long-term rental funding, we provide solutions to suit your client's requirements.
• Fast Closings: We can close loans in as few as 10 business days, helping your clients move quickly on opportunities.
• Broker-Friendly: We value our relationships with brokers and offer competitive commissions, fast approvals, and dedicated support.

By partnering with RCN Capital, you can provide your clients with the financing solutions they need to succeed in the competitive world of rental property investing.

Ready to take your brokerage to the next level? Connect with us today to discuss our real estate financing solutions and how we can help you grow your business.