Before diving into the world of real estate investment—especially fix and flip projects—understanding your financing options is essential. With mortgage rates hovering around 6.89% for 30-year fixed conventional loans, and investment property rates often 0.25% to 0.75% higher, choosing the right funding strategy can make or break your deal.
This guide explores traditional and creative financing options to help you maximize returns and minimize risk as you plan your next investment.
Traditional Financing Options for Investment Properties
Cash Financing
Cash is still king. Buying a property outright offers:
- No interest or approval delays
- Faster closing timelines
- Stronger negotiating power
- No monthly payments during renovation
- Full control over renovations
The downside? Your capital is tied up, limiting flexibility for other projects or surprises.
Conventional Mortgage Loans
Banks and credit unions offer conventional loans with these typical requirements:
- 15%–25% down payment
- Credit score of 740+ for best rates
- Stricter DTI (debt-to-income) ratios
- Cash reserves for 6–12 months of payments
- Interest rates 0.25%–0.75% higher than primary residence loans
Portfolio Loans
Offered by lenders who hold the loan instead of selling it. Features include:
- More flexible credit and income requirements
- Ideal for investors with complex profiles
- Shorter terms or balloon payments are common
- Slightly higher interest rates and fees
Specialized Financing for Fix and Flip Investors
Fix and Flip Loans
Short-term loans tailored for rehab projects:
- 6–18 month terms
- Interest-only payments during rehab
- Loans from $75K to $5M
- Covers up to 85% of purchase and 100% of rehab
- Rates typically 9.99%–10.49%
- 10%–20% down, minimum 500–620 credit score
Hard Money Loans
Fast, asset-based lending:
- Based on ARV (after-repair value)
- Close in days, not weeks
- Short-term (usually under 12 months)
- Higher interest rates
- Often interest-only payments
DSCR Loans
Debt-Service Coverage Ratio loans focus on the property’s income, not yours:
- Great for investors with multiple properties
- Minimal income documentation
- Slightly higher rates
- Requires strong rental income projections
Creative Financing Strategies
Seller Financing
The seller acts as your lender:
- No banks involved
- Flexible terms
- Ideal if seller owns property free and clear
- Great for buyers who don’t qualify traditionally
Subject-To Financing
Take over the seller’s existing mortgage:
- You take ownership; loan stays in their name
- No lender approval
- You benefit from their lower rate
- Often used when seller needs to exit quickly
Lease Options
Rent now, buy later:
- Pay option fee (e.g., 1% of price)
- Portion of rent applied toward purchase
- 2–3 year terms are common
- Ideal for buyers building credit or saving
Wraparound Mortgages
A layered version of seller financing:
- Seller keeps original mortgage
- You pay them, they pay the bank
- Works if seller’s mortgage is assumable
- Typically involves a markup interest rate
Private Money Lenders
Funding from individuals or small firms:
- Quick closings
- Terms based on relationship and project potential
- More flexible than banks
- Higher rates, but less red tape
Qualification Requirements for Investment Loans
Credit Score
- Minimum: 620–640
- Best terms: 740+
- Clean, seasoned credit history is key
Down Payment
- 15%–25% for conventional loans
- 10%–30% for fix and flip or hard money loans
- Bigger down = better rates and leverage
Debt-to-Income Ratio
- Target: Under 36%–45%
- Rental income may offset debt
- Stronger DTI = easier approval
Cash Reserves
- 6–12 months of payments recommended
- Especially important for multi-property portfolios
Income History
- Stable W2 or self-employment history preferred
- Investors may be evaluated on experience and projections
- Self-employed? Be ready with tax returns and profit/loss statements
Investment vs. Primary Residence Interest Rates
Investment vs. Primary Residence Interest Rates
Loan Type: 30-Year Fixed
Primary Residence Rate: 6.89%
Investment Property Rate: 7.14% – 7.64%
Loan Type: 15-Year Fixed
Primary Residence Rate: 6.12%
Investment Property Rate: 6.37% – 6.87%
Loan Type: 30-Year FHA
Primary Residence Rate: 6.82%
Investment Property Rate: Not Available
Loan Type: 30-Year VA
Primary Residence Rate: 6.79%
Investment Property Rate: Not Available
Loan Type: 30-Year Jumbo
Primary Residence Rate: 6.97%
Investment Property Rate: 7.22% – 7.72%
Rates as of April 21, 2025
Why Investment Property Loans Cost More
- Higher default risk
- Potential vacancies
- More complex property types
- Greater lender scrutiny
- Less government backing
How to Secure the Best Financing Terms
1. Improve Your Credit
- Pay down debt
- Correct errors
- Avoid new credit pulls before applying
2. Increase Your Down Payment
- Target 25%+
- Tap retirement savings with care
- Partner with other investors to pool capital
3. Build Lender Relationships
- Talk to small banks and credit unions
- Compare multiple offers
- Work with lenders experienced in investment loans
4. Show Rental Potential
- Provide rent comps
- Show rehab plans
- Highlight your management experience
5. Choose Properties Strategically
- Single-family homes often get better rates
- Turnkey properties are easier to finance
- Avoid overleveraged or overbuilt markets
Final Thoughts
Financing your fix and flip project isn’t one-size-fits-all. From traditional mortgages to creative financing strategies like seller financing and subject-to deals, the best path depends on your experience, capital, and market conditions.
By building a diverse financing toolkit and understanding how each option works, you can structure smarter deals that unlock better returns. Stay informed, stay creative, and always run the numbers—because smart financing is the foundation of every profitable investment.
