The best real estate deals don’t wait. If you don’t have fast funding lined up, others will beat you to opportunities. That’s why you have to work with a lender that’s positioned to help fund your deals as fast as possible. .
At ABL, we’ve helped investors just like you finance properties since 2010. Our fast, flexible loan programs are designed to help you close quickly and efficiently.
Why You Should Secure Property Funding
On top of beating your competition to the closing table, securing property funding can lead to:
- Stronger offers. Sellers like to see that buyers have already been pre-approved for a loan because it lowers the chance of the deal falling through.
- Higher cash reserves. Buying a property outright (i.e., with cash) can be expensive. By getting a loan, you can preserve capital and retain more liquidity in your business.
- Boosted returns. Financing a property can lead to positive leverage, i.e., it can increase your returns by lowering your upfront investment.
- Higher return on equity. When you finance, you can spread your capital across more properties. This raises your return on equity (ROE) by generating more cash flow per dollar invested.
- Scaling your business. You can grow your real estate portfolio much faster by leveraging debt than by relying on cash.
Understanding Your Funding Options
As a real estate investor, you have many options for funding a deal. Here are the most common:
Conventional Mortgage
Conventional mortgages are property loans offered by banks or credit unions. Because they are highly regulated, they tend to have strict borrowing requirements and slow approval processes.
For example, many conventional mortgage lenders require you to maintain a certain debt-to-income (DTI) ratio. This limits your borrowing capacity to a certain percentage of your income, making it hard to scale your real estate portfolio.
DSCR Rental Loan
DSCR rental loans are long-term mortgages offered by private lenders like ABL.
Instead of focusing on a borrower’s credit history or personal income, DSCR loans focus on the property’s debt-service coverage ratio (DSCR). This metric measures how well a property’s cash flow can cover the proposed mortgage payments by dividing the former by the latter.
For example, if a property has a monthly cash flow of $1,000 and an $800 monthly loan payment, the DSCR would be 1.25 (1,000 / 800). At ABL, we have an average minimum DSCR requirement of 1.2 (although lower DSCR programs are available).
Hard Money Loan
A hard money loan is a short-term bridge loan for real estate investors. Typically, the loan is secured by the property being financed, and the collateralized property’s value is the main criterion by which lenders approve loans.
For example, many hard money lenders set a maximum loan-to-value (LTV) threshold. This means they’ll lend up to a certain percentage of the property’s current or after-repair value (ARV). ABL offers bridge loans of up to 65% LTV and fix-and-flip and new construction loans of up to 70% ARV. Meanwhile, we focus less on your personal income.
Cash-Out Refinance
A cash-out refinance is a mortgage that replaces a smaller mortgage to let the borrower pull out the difference as cash.
If you already have equity in an existing property, you could use a cash-out refinance to fund the purchase of another property. This is a great way to leverage the equity you already have so you don’t need to save for another down payment or deplete your cash reserves.
4 Steps to Secure Property Funding
Now that you know your main funding options, here’s how to get approved for a loan:
1. Solidify Your Investment Strategy
Your investment strategy will determine the type of funding you need. For example, are you planning to fix and flip a property, build one from the ground up, or acquire a turnkey rental? Each strategy comes with unique funding needs.
2. Choose the Right Lender
Start shopping for lenders who tailor loans to your investment strategy. Make sure you meet the basic loan requirements and then pre-qualify with different lenders to compare loan terms (interest rates, fees, down payment requirements, etc.).
3. Prepare Financial Documents and Apply
Once you’ve settled on a lender, prepare any required financial documents. These may include property details, a written investment plan, a credit report, business financials, and more. Then submit your loan application.
4. Negotiate Terms and Close
If the loan is approved, carefully review the loan terms, which may have changed since you pre-qualified. In some cases, you can try to negotiate a better interest rate and lower fees. At ABL, we offer the only true zero-point program in the industry.
What Lenders Look for in a Real Estate Investor
To boost your chances of getting approved for a loan with favorable terms, focus on demonstrating the following:
- Clear exit plan. Lenders want to know how you will pay off the loan. A clear exit plan (or plans) can reassure them that you won’t default.
- Creditworthiness. Even if hard money lenders put less weight on your credit history, having a strong credit report boosts your borrower profile.
- Collateral. A down payment shows that you have skin in the game. The more you put down, the better your loan prospects.
- Experience. Lenders like to see a successful track record. Be prepared to show how your past investments performed.
- Cash flow. Strong cash flow on stabilized rental properties demonstrates your ability to cover loan payments.
- Personal guarantee. If your business can no longer repay the loan, a personal guarantee shows that you will make up for it with your personal funds.
Secure a Hard Money Loan with ABL
Ready to fund your next investment property? ABL offers flexible hard money loans for fix-and-flips and new construction, as well as DSCR loans for long-term rentals.
With quick closings and competitive terms, we make it easy to seize opportunities and scale your business fast. Pre-qualify today to get the ball rolling!