Real estate investors use a distinct lender tier from conventional business borrowers: DSCR loans (underwritten on property cash flow, not personal income), fix-and-flip financing (short-term asset-based), hard money loans, and conventional rental property loans. SBA loans explicitly exclude real estate held for investment income — investors need non-SBA products.
Debt Service Coverage Ratio (DSCR) loans are the standard vehicle for rental-property investors. Underwriting is based entirely on the property's cash flow: if the property generates enough rent to cover the mortgage payment (DSCR ≥ 1.0x), the borrower qualifies — no W-2 income verification, no DTI calculation, no tax returns required. DSCR lenders typically require: 680+ FICO, 20–25% down on investment property, and a DSCR of at least 1.0x (some lenders accept 0.75x at higher rates). Rates are typically 1–2% above conventional owner-occupied rates due to higher default risk on investment property.
Fix-and-flip loans are short-term (6–24 months), asset-based loans that fund property acquisition and renovation. Underwriting is primarily LTV-driven: lenders fund to 65–75% of ARV (after-repair value). Rates are higher than conventional loans (8–13% typical), with origination fees of 1–3 points. Exit strategy (sale within the loan term) is underwritten, not just the acquisition. No personal income verification in most cases — the deal economics carry the underwriting.
Hard money is asset-based lending at the most flexible credit tier — lenders primarily care about LTV (typically 60–70% max) and exit strategy, with minimal credit and income requirements. Rates are the highest in the real estate investor product stack (10–15%+), terms are short (12–18 months), and fees are significant. Hard money is typically used for deals that don't qualify for DSCR or fix-and-flip products due to property condition, credit issues, or deal speed. It's a bridge instrument, not a long-term hold product.
SBA 7(a) and 504 programs explicitly exclude passive real estate investment — purchasing or holding property primarily for rental income is not an eligible SBA loan purpose. This is a hard exclusion, not a guideline. Real estate investors seeking financing must use private lenders, portfolio lenders, or DSCR-specialized lenders. The CFPB maintains resources on investment property lending at https://www.consumerfinance.gov/. SBA eligible-use guidance: https://www.sba.gov/funding-programs/loans/7a-loans.
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