How Investment Property Loans Work

April 9, 2025Blog, Fix and Flip, Investor Rental Portfolio Loan, Private Lending, Transactional Funding, Wholetail Loan,

Investment Property Loans for Investors

Investing in single-family homes (SFH), multi-family (MF), and other types of property can be a great way to build wealth through rental income, fix-and-flip projects, or other real estate ventures. But how do investment property loans work? How do hard money loans work? Understanding residential investment property financing and investment property loans is crucial when you want to minimize risk and maximize reward. Here’s a comprehensive guide on common loan types and what you can expect when applying for a loan.

3 Common Types of Property Loans

When it comes to securing investment property loans, investors typically choose from two financing methods:

  • Hard money loans: Hard money loans are short-term loans often provided by private lenders like Ternus Lending. Private lenders focus on the property’s value rather than your personal credit. Because hard money loans use the property as collateral and allow faster closings, they’re popular for short-term financing or investment strategies.
  • Conventional loans: Traditional bank loans, or conventional loans, are long-term, lower-interest loans. They often have stricter criteria and a longer application process. Conventional loans are a better fit for personal home-buying rather than for active real estate investors.

Conventional Loan Approvals Vs. Private Loan Approvals

When it comes to getting approved for a loan, conventional mortgages from banks and hard money loans have very different processes.

Conventional Loans:

    • Requires extensive paperwork, including income verification, tax returns, and bank statements.
    • Focuses on the borrower’s financial history, such as credit score, employment, and savings.
    • Takes an average of 30-45 days to close due to strict underwriting and review processes.
    • Requires a home appraisal to ensure the property meets lender guidelines.
    • Typically offers loan-to-value (LTV) ratios of 80-95%, meaning buyers must put down at least 5-20%.

Hard Money Loans:

  • Approval is based on the property’s value and income potential, not the borrower’s credit score or job history.
  • Requires minimal paperwork, making it a much simpler process.
  • Can close quickly, making it ideal for quick real estate deals.
  • Often used for fix-and-flip projects, with lenders considering the after-repair value (ARV) of the property.
  • LTV ratios may vary, but these loans typically offer more flexibility than traditional mortgages.

So, while banks look at you, private lenders look at the property—making hard money loans a faster, more flexible option for investors who need quick funding.

Paperwork Needed for an Investment Property Loan

Securing a conventional investment property loan requires gathering a few key documents. Here’s a checklist of paperwork you should have ready:

  • W-2s and 1099 forms from the last two years
  • Last two years of tax returns, both business and personal
  • K-1s if you have business ownership interests
  • Bank statements from the past two months
  • Most recent pay stubs
  • Brokerage or retirement account statements from the last two cycles

If you already own properties, you will also need to provide a spreadsheet with property details, including addresses, estimated value, lienholder amounts, tax, insurance, homeowners association (HOA) dues, and rent amounts.

On the other hand, private money lenders require much less documentation. You’ll need:

  • A loan application
  • A purchase contract
  • Proof of insurance and funds
  • Loan agreement
  • 2 forms of identification
  • Preliminary title report

What to Do When Your Loan Offer Is Accepted

Once you secure a property with an accepted offer, you’ll want to notify your lender as soon as possible. Timing is everything for investors, especially with fix-and-flip loans where you may want to move quickly to begin renovations. Start coordinating with contractors to get estimates and prepare a Scope of Work document, which details the rehab required and helps your lender understand the amount of funding you will need.

What Are Draws?

For properties that need renovation, financing will often include multiple draws, which are partial disbursements of funds for completed work stages. Draw inspections confirm that the work has been completed to meet lender standards. Make sure your contractor and the inspector can access the property, whether that means coordinating for a key or providing lockbox codes.

Consider the ARV

When you’re getting a loan for an investment property, it’s important to understand the ARV, or after repaired value. Unlike traditional banks that lend based on what a property is worth right now, private lenders look at what it could be worth after renovations. ARV is the estimated future value of the home once all repairs and upgrades are done, making it ready to sell. Lenders determine this by looking at similar homes in the area that have recently sold, also known as “comps.” Knowing the ARV helps you figure out how much funding you can get and whether the deal makes sense for your investment.

Ready to Get Started?

Investment property loans can be complicated, which is why Ternus is here to make it simple. Whether you’re planning a fix-and-flip or purchasing a rental property, our hard money loans offer speed and flexibility. At Ternus, we offer:

With our team of professional loan officers, you will get a smooth, transparent process and a quick closing. Take the next step in your real estate investment journey and reach out to Ternus Lending today for more information on how to get a loan tailored to your investment goals.

*Rates and terms may be subject to change.