Rental property loans

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I'm researching about real estate investing and I'm confused on what loan to use, am I able to use a conventional loan to fix and flip or keep it as a rental, or do I have to get a non-owner occupied loan? Do I need to check with the lender if I'm able to rent the property with a conventional loan?

[Josh Starner]

Hey Christian, 

I personally use a hard money interest only loan, then a debt service coverage ratio loans after fixing a property if my intent is to hold. Generally you can get a hard money interest only loan (eg. 100k loan at 12% APY would run you 1k a month and pay down no principal) rates vary but are somewhere in my experience in the 7-11% bucket based on your credit score, assets and experience. These are designed to incentivize you to flip the property quickly and then you can refinance to a different type of loan once the renovation is completed. 

A debt service coverage ratio loan (DSCR) allows you to borrow against a property using either the rents as indicated on the leases or the fair market value of the rent for that area. These loans check your credit, but do not use your personal income to qualify. Thus, you can quickly scale without impacting your personal debt to income ratio. Rates are usually .5 to1.5% above what a bank would charge on a primary residence and usually carry a prepayment penalty so they are designed to be a property you are going to hold for 3+ years. In my experience in order to qualify the property must have a CO.

The best advice I can give you is take your time and shop the rates, you will be speaking with sales people who will aggressively try and get you using their loan product. Yes, rates are increasing seemingly daily at this point, but do your due diligence in considering multiple lenders and you will be surprised how much they vary in fees and rates. 

Best of luck to you, 

Josh