Rookie investor looking for help with financing.

[Brandon Beale]

Hi y'all. I'm new here. I'm looking for help financing deals.

[Jon Holdman]

Here's an expansion of what I wrote. Hopefully this will give you a bit of background for our future reading.

I explained conventional terms above. That's really what you want, if you can get it. Its the lowest rate loan. Don't be fooled by advertised rates, those are for owner occupants. As an investor you'll pay 0.5-1% more. Conventional is pretty easy (if you qualify) for mortgaged properties 1-4. For properties 5-10, its tougher to find a lender, but there are some around.

Commercial refers to loans that aren't limited to the conventional rules. Those are the rules set by Fannie Mae and Freddie Mac. Commercial can be much more flexible. Rates tend to be a little higher. Terms are shorter - 15-20 years maximum, typically. If you find a good lender, you can get all these you want. The banks rule of thumb is "cash flow = (rent * 75%) - PITI. If that's positive, it contributes to your income and helps your DTI. If its negative, it contributes to your debt payments and hurts your DTI. If you can buy positive deals, find a cooperative lender, and can get past that initial hump, you can buy as many as you want with this sort of financing.

Owner financing. This is where you deal with an individual rather than a bank. There are a variety of ways to do this:

Straight owner financing - owner sells you a free and clear property and carrys a loan. You make the payments to them. No bank involved. Totally legit, through there are some risks. Exactly like a bank loan. You (buyer) now own the property (i.e., you have a deed from the seller) and give the lender (seller) a security interest in the property. They have to foreclose to kick you out if you stop paying.

Other forms are used if the owner still have a loan. All of these violate the due on sale clause, which gives the existing lender the right, but not obligation, to call the loan due. This is not illegal. You won't go to jail for this. It is simply a violation of the contract terms and gives the lender certain rights.

Wrap - Same as above, but with a loan in place. The new loan "wraps the existing loan". You pay the seller, they pay them bank. You get a deed, they have to foreclose.

Subject to - You take over the seller's payments. You start making payments to the seller's lender. Usually involves some small amount of cash paid to the seller, but a desperate seller may just walk away. The loan stays with the seller. If the bank forecloses, you lose the house and the seller's credit gets wrecked. Buying this way can actually help the seller's credit. If they're behind, and you make up the late payments and start paying on time, their credit will improve.

Land contract - This is like a car loan. Seller sells you property with a contract. You don't get a deed until you complete the contract. Stronger for the buyer than a lease, but not as strong as an actual purchase.

Lease/option - You as buyer have two agreements with the seller. A lease, which gives you possession of the property. And an option to purchase which gives you the right to buy. If you don't pay they just have to evict you. The weakest form of seller financing, from the perspective of the tenant.

Finally hard money. These are short term loans at high rates. Typically mid double digits and several points. Good for fix and flipping. Not for long term. You can use these loans to acquire a property and fix it up. You would then either need to sell or, if you want to keep it, refinance into another loan. A better alternative, if you can find it, is construction financing from a bank. Very tough to find these days, though.