What type of loan should I go for as a first time investor?

[Sara Habtom]

Hello! I’m not sure if what kind of loan I should go for when it comes to rental properties. I have zero debt and my credit score is 778. The only problem is that I don’t have 2 years worth of work history. Are there some loans out there that will still approve me? 

[Andrew Postell]

@Sara Habtom yeah, you will absolutely have loan options. You may not need "2 years of work history" either depending on the details

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.  These are the types that need work history...however, depending on your scenario, you may not need exactly "2 years of work history" to qualify.  There might be some allowance here. 

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and have some other feature that doesn't look as good as a "conventional" loan.  Here, no work history is needed.  There's no "Debt to Income" ratio stuff here either.  The "income" is based on the income of the property.  Worst case, you can still get this type of loan.

Hope all of that makes sense but feel free to reach out with any other questions.  Thanks!