Conventional, portfolio, DSCR and hard money

Investor financing is not one market. It is several, with different underwriting, pricing and constraints.

Conventional financing

Loans conforming to the standards of the government-sponsored enterprises, made by ordinary lenders and typically sold on.

The cheapest money available to individual investors. Long fixed terms, competitive rates, standard amortization.

The constraints are significant. Underwriting is based on the borrower's personal income, debt-to-income ratio and credit, not primarily on the property. Down payments on investment property are typically substantially higher than on owner-occupied. Rates carry investment-property pricing adjustments.

And there is a limit on the number of financed properties a borrower can hold under these programs, commonly cited as ten, with tighter documentation requirements above four.

Most investors who scale eventually hit this ceiling, which is when the other categories become relevant.

Portfolio lending

Loans made by a bank or credit union that keeps the loan on its own books rather than selling it.

Because the lender bears the risk and sets its own standards, terms are negotiable and underwriting is relationship-based. Community banks and credit unions are the usual source.

Typical characteristics: shorter fixed periods with balloons, commonly five to ten years; amortization of twenty to twenty-five years; rates somewhat above conventional; and flexibility on property type, borrower structure and number of properties.

The relationship is the product. A local bank that knows you, has seen your operating history and understands the submarket will do things a national lender will not.

For investors building a portfolio, developing two or three such relationships early is among the highest-value activities available, and it is best done before you need the money.

DSCR and investor-focused non-QM loans

Loans underwritten primarily on the property's income rather than the borrower's personal income.

Qualification is based on the debt service coverage ratio, with programs commonly requiring somewhere in the range of 1.0 to 1.25 depending on leverage and pricing.

Advantages: no personal income documentation, no limit on number of properties, faster and simpler for self-employed borrowers, and closing in the name of an entity is generally straightforward.

Costs: rates meaningfully above conventional, higher down payments, prepayment penalties on most programs, and terms that vary substantially between lenders.

The prepayment penalty deserves specific attention. Many programs carry step-down penalties over the first three to five years. If your plan involves refinancing or selling within that window, price it.

Hard money and private lending

Short-term, asset-based lending at high cost, used for acquisition and renovation where speed matters and conventional financing is unavailable.

Typical terms: high single-digit to low double-digit rates, several points of origination, terms of six to twenty-four months, interest-only, and lending based on after-repair value with staged draws for renovation.

The use case is genuine. A property that will not qualify for conventional financing because of condition, or a purchase that must close in ten days, cannot be funded any other way.

The danger is the exit. Hard money is a bridge, and a bridge requires a far side. If the renovation runs long or the refinance is delayed, the carrying cost accumulates fast and the loan matures regardless.

Private lending from individuals occupies similar ground with more variable terms, and it depends heavily on the relationship and on documentation being done properly, which it frequently is not.

Commercial lending

For properties of five or more residential units, and for commercial property generally.

Underwritten on the property's income and the sponsor's experience and balance sheet. Terms typically five to ten years fixed with a balloon, twenty-five to thirty-year amortization, and DSCR requirements around 1.20 to 1.30.

Recourse varies. Smaller loans are usually full recourse; larger ones may be non-recourse with carve-outs.

Third-party reports — appraisal, environmental assessment, property condition report — are required and paid by the borrower, which adds meaningfully to closing costs.

Choosing between them

The general progression for a growing investor is conventional financing while it is available, portfolio lending as relationships develop, DSCR products where documentation is the constraint, and commercial financing as property size increases.

Hard money is used tactically for specific situations, not as a general funding source.

The mistake worth avoiding is using expensive money for a long-term hold because it was fast, and then discovering that the intended refinance is not available on the terms assumed.

What to compare

Not the rate. The total cost over your actual holding period, including points, fees, third-party reports, prepayment provisions, reserve requirements and the cost of the eventual refinance.

Two loans quoted a half point apart can differ by tens of thousands of dollars once those are counted.

General information about real estate finance, not investment or legal advice. Loan programs, terms and limits change frequently. Consult qualified lending and legal professionals about your own circumstances.