How to finance rental properties. It's 2008 and much has changed in the mortgage industry. Between the year 2000 and 2007, we could all get zero down mortgages on rental properties. Even if our credit scores were as low as 580. Credit was easy to obtain.

The purpose of this article is to show you the best way to get financing in todays lending climate. First, let me show you the difference between a mortgage broker and a mortgage banker.
A mortgage broker will shop around for a mortgage through hundreds of nationwide lenders. Prior to 2007, this was a great route to go. This is where you could get a zero down mortgage with a 30 year fixed rate.

A mortgage banker is an originator of a mortgage. It is a specific lending institution, like a bank, who will lend their own funds. Unfortunately, banks will always require a down payment to purchase a rental property. It is usually 20 percent.So what is the best way for financing rental properties today? It's by using a Rehab Lender.

Forclosures are abundant and will always need rehab. Let's say you wanted to buy a forclosed property that needed substantial work. Banks and mortgage brokers will not lend on this type of property. A rehab lender will.

Here's how it works. Most rehab lenders will lend up to 70% of After Repaired Value (ARV). This includes the purchase price, closing costs, and repairs. You're credit score can be as low as 620 with no problem. These mortgages are between six and twelve months. Then you must sell the property or refinance it with a different lender.

Here is an example:

$40,000- Purchase price.

$4,000- Closing costs.

$26,000- Repair/renovation.

$70,000- Total funds needed.

If the ARV of this property is 100k, they will fund it.

This is the best way for financing rental properties because it's zero down and you get a fully renovated house from the start.

After the property is rehabbed and rented out, you will need to refinance it with a different lender.
In todays real estate market, I would suggest a small local bank in your community. On a refinance, they will give you the best interest rate. Way better than what you could get through a mortgage broker. It's typically a half point above the current mortgage rate. They will also refinance with no money down up to 70% LTV. With a rental property they usually offer a 3-5 year arm product. I have never found a bank who will offer a 30 year fixed on a rental property. But that's ok. Refinancing with a small local bank is better in every other way. They are even more lenient with credit scores because they do their own underwriting.

I know you're next question. Where do I find a rehab lender? There are a few nationwide private rehab lenders. You can find these by typing "rehab lender" in your browser.

Another way is opening up the Yellow Pages and calling the smaller banks in your city. In my city, I have found two local banks that do rehab lending. The local banks I use require a 10% and 15% down payment. Their closing costs are only $1000. Because of their down payment requirement, I usually use a private rehab lender even though the closing costs are higher. This company requires no down payment and can escrow the closing costs.

Another way to find these private lenders is to call your local Apartment Association. Another way is to use Craigslist.org. Under "Real Estate Services" place a free ad saying, "Seeking a rehab lender". You'll be surprised how many responses you get. You can also find them in your local Yellow Pages.

Now you know the best way of financing rental properties. Let me show you a great way to find them by going here. http://www.squidoo.com/financing-rental-properties

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