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Getting started in real estate investing is exciting—but before you dive in, it’s crucial to understand how lending works in this space. In this episode of the LFG Lending podcast, we break down the lending landscape for new investors, from short-term loans to long-term financing strategies.
Whether you’ve been binge-listening to BiggerPockets or dreaming of flipping your first house, this episode will help you set realistic expectations and avoid common financing pitfalls.
Key Lending Concepts for First-Time Real Estate Investors
Education is Everything (Yes, Before the Money)
Contrary to popular belief, funding the deal isn’t the hard part-it’s understanding what kind of loan products exist, how they work, and which one fits your strategy. Most people are familiar with how a primary residence loan works. Investment lending? Entirely different game.
Pro Tip: Don’t start your investment journey by walking into a local bank and asking about flip financing. They likely won’t have the tools or products to help.
Work with a Commercial Mortgage Broker (Not Just a Bank)
Your typical bank only offers a few in-house lending options-and if you don’t fit their box, you’re out of luck. But a commercial mortgage broker like LFG Lending can shop your deal to dozens of lenders, helping you find the right fit and terms for your specific project.
This flexibility becomes essential if your deal needs unique terms, fast closing, or lower documentation.
Short-Term Lending ≠ Long-Term Commitment
Short-term loans (like hard money and bridge loans) are ideal for flipping or rehabbing properties quickly. Yes, the interest rates are higher (think 10-12%), but you’re only in the loan for a few months-just long enough to stabilize or flip the property.
Paying cash may seem “safe,” but it depletes your liquidity, which can hurt you when surprises pop up-or when it’s time to refinance.
Always Keep a Liquidity Buffer
If you sink all your money into one deal, what happens when there’s a $20K septic issue? Lenders also want to see that you have reserves before offering a cash-out refinance. Running low on funds puts your exit strategy at risk.
Unexpected repairs, ARV changes, or slower sales can happen. Plan for the “what ifs.”
Why DSCR Loans Are a Game-Changer
A DSCR loan (Debt Service Coverage Ratio) uses the income from the property to qualify the loan-not your personal income. This is ideal for investors who are scaling, self-employed, or don’t want to use W-2 documentation.
- No income verification required
- Close in an LLC (unlike conventional loans)
- Ideal for rental portfolio growth
DSCR Qualifier: Most lenders look for a 1.2 ratio. That means if your monthly mortgage payment is $1,000, your expected rental income should be at least $1,200.
Other Financing Strategies to Know:
FHA & House Hacking
If you’re starting with minimal funds and want to house hack (live in one unit, rent the other), an FHA loan with 3.5% down may be a great fit-especially for duplexes, triplexes, or fourplexes.
Conventional Loans
These still work for a one-time investment, like buying a student rental for your child. But keep in mind:
- Limit of 10 conventional loans
- Must close in your name (not an LLC)
- Income verification required
Watch Out for Fannie/Freddie’s 12-Month Seasoning
If you plan to rehab and refinance, note that conventional loans now require a 12-month seasoning period before you can use a new appraised value-meaning you’ll be stuck in the deal longer unless you go commercial.
Why Mortgage Brokers Give You the Edge
At LFG Lending, we’re not tied to one lender-we work with 40-50. That means we can:
- Shop your deal for the best terms
- Pivot if underwriting or terms change
- Protect you from costly surprises
- Move quickly when timing matters
Lender appetite changes constantly. Don’t get stuck with Larry at Big Bank-who can only offer what he sees on his screen.
Final Thoughts: Don’t Marry the Rate-Marry the Deal
Many new investors get stuck obsessing over interest rates. But the truth is, rates can (and likely will) change. Focus on whether the deal works with the rate today, not whether you might get something better six months from now.
Try this: Plug your refinance numbers into a mortgage calculator. Play with interest rates. See how it affects your payment. It’s rarely a dealbreaker-and it’ll make you more confident and nimble as an investor.
Need Help Structuring Your First Investment Deal?
Book a strategy call with LFG Lending today. We’ll help you understand your options, evaluate your risk, and create a funding game plan that matches your goals-whether it’s your first flip or your fifth BRRRR.