If you spend any time around real estate investors, you’ll hear terms like “conventional lender” and “portfolio lender” thrown around constantly. If you aren’t sure what the difference is—or which one is right for your next deal—you aren’t alone.
The good news is that there are near-endless types of financing available. This means experienced investors have a massive “toolkit” of options to fund deals. The bad news? The abundance of options can be overwhelming for beginners.
To help you navigate the lending landscape, we’ve broken down the two most fundamental types of loans—conventional and portfolio—and expanded on several other creative financing methods you need to know.
1. Conventional Loans
If you’ve ever taken out a mortgage to buy your own home, you are likely familiar with a conventional loan. These are traditional bank mortgages that fit into either agency-backed (Fannie Mae or Freddie Mac) or government-backed (FHA, VA, or USDA) loan programs.
The Pros:
- Cost: Conventional loans are usually the cheapest form of financing available.
- Stability: They typically offer 15 or 30-year fixed rates.
The Cons:
- Speed: They are slow. Closing usually takes 30 days or more, putting you at a disadvantage against cash buyers.
- Strict Guidelines: Because lenders sell these loans on the open market (to servicing giants like Wells Fargo or Chase), the loans must conform to strict standardized rules regarding the property condition and borrower income.
- Credit Reporting Limits: These loans report to credit bureaus. Most programs cap the number of mortgages you can have (often between four and ten), meaning you will eventually “max out” your ability to use them.
2. Portfolio Loans
Portfolio lenders are banks or institutions that keep their loans within their own “portfolios” rather than selling them off to secondary markets. Essentially, they are lending their own money (or money raised from private investors).
The Pros:
- Flexibility: Because they don’t have to follow government-dictated rules, portfolio lenders set their own guidelines. They can often lend on properties that conventional banks won’t touch.
- Scalability: They generally do not report to personal credit bureaus in the same way, helping you avoid the “10 mortgage cap.”
- Speed: Smaller, more nimble portfolio lenders can often close in 10-21 days.
The Cons:
- Cost: You will pay slightly higher interest rates and fees compared to conventional loans.
3. Hard Money Loans
Hard money lenders are short-term lenders, often used by house flippers or BRRRR (Buy, Rehab, Rent, Refinance, Repeat) investors. Unlike conventional banks that look heavily at your personal income, hard money lenders look primarily at the “asset”—the deal itself.
- Best For: Distressed properties that need renovation.
- Structure: Short-term (6–18 months), often interest-only payments.
- Benefit: They lend based on the After Repair Value (ARV) and can fund the renovation costs.
4. Private Money Lenders
Private money refers to borrowing from individuals who are not in the business of lending money. This could be a family member, a friend, or a wealthy acquaintance looking for a return on their capital.
- Best For: Down payments, gap funding, or full deal funding.
- Structure: Entirely negotiable. You and the lender decide on the interest rate and repayment schedule.
- Benefit: This is often the most flexible relationship-based funding you can find.
5. Owner Financing (Seller Financing)
Sometimes, the best lender is the person selling the house. In an owner financing arrangement, the seller acts as the bank. You make a down payment to them, and then make monthly mortgage payments directly to them rather than a financial institution.
- Best For: Properties owned free and clear by motivated sellers.
- Benefit: No bank fees, no appraisal requirements, and no credit checks (unless the seller requests one).
6. Commercial Loans
Once you move beyond single-family homes into multifamily properties (5+ units) or commercial buildings, you enter the world of commercial lending. Like portfolio loans, these are evaluated based on the profitability of the asset rather than your personal debt-to-income ratio.
- Best For: Apartment complexes, office buildings, and retail spaces.
- Structure: These loans often have shorter terms (e.g., 5, 7, or 10 years) with a localized amortization schedule (e.g., payments calculated as if it were a 25-year loan).
7. Home Equity Lines of Credit (HELOCs)
If you already own property with significant equity, a HELOC allows you to tap into that value without selling the property. It functions like a credit card backed by your home.
- Best For: Funding down payments on new investment properties or covering renovation costs.
- Benefit: You only pay interest on the money you actually draw.
8. Business Lines of Credit
Unsecured business credit lines and cards (from services like Fund&Grow) allow investors to separate their business expenses from personal finances.
- Best For: Covering shorter-term costs like materials, direct mail marketing campaigns, or minor repairs.
- Benefit: These generally do not report to personal credit bureaus, protecting your personal credit score utilization.
Building Your Financing Toolkit
Expert real estate investors know that money is always available for a great deal—you just need to know where to look. By building relationships with conventional lenders, portfolio lenders, and private individuals, you ensure you always have a way to fund your next investment.