Mortgages & Creative Financing

5 Ways to Land Financing After the Traditional Bank Cuts You Off

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
228 Articles Written

Things may be going great between you and your bank. Maybe you’ve attained several mortgages from them already, and you’ve been buying up real estate left and right, building your portfolio.

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You might not see it coming, but once you own a set number of mortgages in your own name, the traditional bank will likely cut you off, refusing to lend you another cent. Although the limit can vary, I believe it’s now around 10 mortgages. Of course, this number depends on many factors.

So, why would the bank do this, especially when you’ve shown them repeatedly that you’re good for the money? Maybe you even have a perfect credit score or enough cash in reserves to buy the property outright if you really wanted to. That’s great—it’s not what the bank is concerned about.

Just as we investors like to diversify between multiple investment types, sometimes the traditional bank likes to spread out their risk among many different borrowers, not lending over a certain amount to any one person, for example.

This, however, does not actually mean that your situation is too risky or that you have done anything wrong. It’s the bank’s policy. Or, in other words: It’s not you, it’s them.

Related: 4 Reasons Property Owners Might Choose to Sell via Seller Financing

To avoid being blindsided, a good practice is to every now and again take a banker to lunch (i.e. pick his or her brain). Ask them what they’re lending on these days or what kind of deals they’re looking for.

If you’re already to the point where you’ve hit a roadblock with your neighborhood bank, no matter how many lunches you buy, don’t lose hope.

Over the years, I’ve borrowed at least 50 mortgages, including refinances and HELOCs (home equity lines of credit), and of course, not all of them were acquired from traditional lenders. There are other options out there.


5 Ways to Get Deals After the Traditional Bank Cuts You Off

1. Find an investor-friendly bank or mortgage broker.

When I hit that first roadblock, I decided to join a local real estate club to network with other real estate investors. Through rubbing elbows with more experienced investors, I was able to add more tools (or strategies) to my arsenal.

I also met others who had hit the same roadblocks I was currently trying to bypass. Little did I know that there were investor-friendly private lenders out there looking for deals. I was even connected with a mortgage broker out of Pittsburgh who helped me attain several mortgages.

Although hiring a mortgage broker does require you to pay more than if you had found the financing on your own (i.e. maybe he’ll make a few points), there are still benefits. Mortgage brokers are well-versed on what lenders are looking for, and they may be able to find you financing that you wouldn’t have otherwise known about. If the numbers still work and you get the deal you wanted, it just might be worth it.

2. Go commercial.

When you create an LLC for your real estate business, you are usually required to attain commercial financing for any properties purchased by the LLC. That said, the bank will treat the LLC as a separate borrower, allowing you to obtain more financing that’s not necessarily limited.

Personally, I’m not a huge fan of commercial loans that require me to personally sign or that are eligible to recast in, say, five, seven, or 10 years, since now my other assets are at risk in a default (not just the property loaned against) or I may not qualify for the loan to continue if there was a dramatic change in property value or in my personal income or credit.

3. Don’t use the bank at all.

There are also ways to get the deal without the bank. For example, you could do a subject-to deal, a lease-option, or have the seller provide owner financing.

Better yet, you could find a money partner who would either put up all the money for the deal or sign on the loan. Using OPM (other people’s money) is a great way to acquire deals, while sharing both the risk and the return.

4. Use private or hard money.

My favorite type of OPM is private money, which I also learned about through joining the local real estate club.

Related: Creative Financing: 5 Outside-the-Box Tools Savvy Investors Use to Build Wealth

There’s also what is commonly referred to as “hard money,” the difference being that hard money is typically more expensive with stricter terms and is often released on a draw schedule, in accordance with the work that’s being completed on the property.


5. Become the bank.

At some point, possibly after you’ve grown your real estate portfolio, you may start thinking about becoming the lender, as opposed to the borrower. When you have capital to deploy, lending private money or purchasing performing notes allows you to participate in a real estate deal on the financing side. It’s also much more passive.

Personally, I worked my way through each of these five strategies, and each one of them helped me to build more wealth.

Although it may be tempting to jump ahead to commercial financing or some of these other strategies, I’m a big believer in utilizing the bank’s money while you can. When you’re just starting out, you can get financing with very low down payments, especially when buying owner-occupied or as a first-time homebuyer. Why not take advantage of it?

So, has the neighborhood bank cut you off yet? If so, what are some of your favorite, creative strategies for financing your deals?

Leave a comment!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
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    Laura Verderber Rental Property Investor from Fairhope, AL
    Replied almost 3 years ago
    Great article. I only have two properties so hopefully I’ve still got a while with the bank. Question, do you mean a limit of 10 loans per bank or 10 loans total, no matter how many banks you use?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 3 years ago
    Thanks Laura! John’s answer below sounds correct.
    John Barnette Investor from San Francisco, California
    Replied almost 3 years ago
    You can hit a total.of 10 financed properties and still be within Freddie Mac guidelines. Fannie Mae caps at 4. 11 and up and it goes to portfolio lenders , often with investor backing. I also learned last year while attempting cash out refi’s on multiple investment properties that you are curtailed at 4 I believe. So I had to establish a relationship with a great bank lender for some nice portfolio products. Of course they want solid credit quality, low loan to value, and cash flowing property too.
    Susan Maneck Investor from Jackson, Mississippi
    Replied almost 3 years ago
    Do you know whether first-place HELOCs count towards the four properties Fannie Mae allows? Right now I have two conventional mortgages and three first-place HELOCS. Have I passed my limit?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 3 years ago
    Hi Susan, If you visit a lender that you get pre-qualified with, they should let you know that status up front (without paying a mortgage app fee). Best, Dave
    Laura Verderber Rental Property Investor from Fairhope, AL
    Replied almost 3 years ago
    Great article. I only have two properties so hopefully I’ve still got a while with the bank. Question, do you mean a limit of 10 loans per bank or 10 loans total, no matter how many banks you use?
    David Krulac from Mechanicsburg, Pennsylvania
    Replied almost 3 years ago
    Great article Dave. I’ve also had over 50 mortgages. One little trick on the Fannie/Freddie 10 mortgage limit is to get your ten residential mortgages, AND have your spouse/significant other get ten MORE mortgages in their name. After you get your TWENTY residential mortgages, then you can look at portfolio lenders. I’ve belonged to many Credit Unions, several of which do portfolio mortgages where they don’t sell on the secondary market to Fannie/Freddie and keep the mortgages in house. Another Credit Union product is the Signature Loan, an unsecured line of credit based on your signature alone; some of these can be as high as $75,000 and make great sources of down payments, and rehab expenses. Once approved you get the money from the teller as if coming from your own account. I’ve borrowed and paid back numerous times, and it was a big aid in my real estate investing career of buying and selling over 900 properties. See you in April at the Mid Atlantic Summit in Philadelphia.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 3 years ago
    Hey David, Great point about the ten mortgages each! I did that with my spouse as well. Also like the idea of the Signature Loan as well! But sometimes I believe they could require to see your finances every year to re-qualify which could be an issue for some investors. And look forward to seeing you at the Summit as well! Best, Dave
    Karen Rittenhouse Flipper/Rehabber from Greensboro, NC
    Replied almost 3 years ago
    Really helpful article, Dave. The more business an investor is doing, the more money sources they will need. Anyone who’s been doing this long term has probably used all of the options you discussed. And, even if an investor is not doing a lot now, they need to seek out all of these sources so funding is always available when they need it! Never miss a deal due to lack of funding! I’ve used everything you mention and am now a hard money lender. If an investor has a great deal, they can always find the money!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 3 years ago
    That’s right Karen! Thanks for reading! Best, Dave
    Marina Spor Investor from Buena Park, California
    Replied almost 3 years ago
    There are a number of crowd funding platforms that will lend for fix and flip projects or those that may be refinanced after a year or so. Patch of Land and Peer Street are a couple of them. This is considered hard money and interest rates are high (est 8%-10%).
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 3 years ago
    You’re absolutely right, Marina! Though crowdfunding financing can be similar to bank financing in terms of requirements.
    Chris Field Investor from Milford, Connecticut
    Replied almost 3 years ago
    I have always done commercial, imho residential is more challenging. It seems to me it’s s lot less paperwork to get a few million commercial loan than a $200k residential.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 3 years ago
    Chris, I’ve done both and I think you’re right to a degree…but you’re also paying a higher rate, putting more money down, and it has the ability to recast. I also think depending on the type of commercial property, this isn’t always the case. I invested in mobile home parks with bank financing and they had quite a daunting amount of paperwork. So I suppose it depends on the project on either side of the fence. Best, Dave
    Hamid Hotaki from Cary, North Carolina
    Replied over 2 years ago
    Dave and David, Thank you for the article and feedback! I financed all the loans and while closing the 10th loan, I asked my attorney and mortgage broker if I could start financing on my spouse’s name. They said no, because in NC it is recorded on both of our names… Seems like that trick you stated is state specific, would you agree? Regards, Hami
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied about 2 years ago
    Very good article Dave!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Thanks Andrew!
    Josef Super from Pittsburgh, Pennsylvania
    Replied about 2 years ago
    Good content as usual Dave! I especially enjoy #5 and the concept of being the bank. Great option to consider if you have retirement funds to deploy and would like to diversify your portfolio by being on the other side of debt.