If you want to succeed in any business, understanding financing is essential. This is especially true for real estate. Financing real estate is often the biggest hurdle that keeps potential investors from getting started or scaling their portfolios. Many investors either overpay for properties or lack the knowledge to take their investments to the next level. But that won’t be you! After reading this, you will understand how much money you need to buy an investment property and learn multiple ways to get those funds.

Real estate remains one of the best ways to achieve financial freedom and build generational wealth. Financing real estate today is more accessible than ever thanks to advances in computerized lending. Whether you are new to the game or a seasoned investor, knowing the key principles of financing real estate can make all the difference.

Here are five secrets that every investor should know about financing real estate:

Secret 1: Mortgage Bankers vs. Mortgage Brokers

When it comes to financing real estate, knowing the difference between mortgage bankers and mortgage brokers can save you time and money. Mortgage bankers sell their own loan products, which can mean quicker closings but limited options. On the other hand, mortgage brokers work with multiple lenders, giving you access to a wider variety of loan products.

For real estate investors, building relationships with mortgage brokers who specialize in investment properties can give you the flexibility you need to grow your portfolio faster.

Secret 2: Purchase Properties for Less Than They’re Worth

One of the most critical aspects of financing real estate is ensuring that you buy properties at a discount. I like to say it this way: you make money when you buy, not when you sell. Aim to purchase at 80% of the property’s market value after repairs. This gives you built-in equity and a cushion for refinancing or taking out a home equity line of credit (HELOC) later.

If you use your own money for the down payment, it increases your negotiating power and helps you secure a better deal. With solid financing in place, you will be able to leverage the property’s value more effectively in the future.

Secret 3: Raise Your Down Payment Strategically

You may be wondering how to raise the down payment required to get into the real estate market. One way is by tapping into your home equity. Home equity is one of the most underutilized assets in America. Whether you choose a cash-out refinance, home equity loan, or HELOC, these strategies can be powerful for financing real estate.

Other options include borrowing from retirement accounts, using lines of credit from local banks, or even partnering with others to share the cost of the down payment. Being creative with your financing can make a big difference in how quickly you can scale your real estate portfolio.

Related: “How Much Do I Need For a Downpayment?”

Secret 4: Manage Your Credit Score

Your credit score is a critical factor in financing real estate. The higher your score, the better the loan terms and interest rates you’ll be able to access. A score of 760 or higher is ideal for investors, but anything above 680 should give you access to most loan products.

Managing your credit wisely is key. Be sure to monitor your credit report, dispute any errors, and avoid taking out too many loans or refinancing too frequently. Maintaining a good credit score will make it easier to get financing as you grow your real estate business.

Secret 5: Know What Matters to an Underwriter

Knowing what matters to an underwriter will help you secure the best financing options. There are four main categories an underwriter considers: credit score, capacity, collateral, and character.

We’ve already covered credit scores, noting that a score of 760 or higher is crucial. I like to call this the “$250,000 credit score,” as it often allows you to finance multiple properties. For instance, one of the strategies I teach is owning 30 single-family homes with at least $300 positive cash flow per month (after principal, interest, taxes, insurance, and management fees). This setup could provide you with $100,000 a year in tax-free income, but it requires a high credit score to achieve.

Capacity is the next factor underwriters assess. This refers to your debt-to-income ratio. They will typically allow no more than 28% of your gross monthly income for your mortgage payment and no more than 36% for all debts combined. However, higher credit scores can sometimes allow for more flexible ratios. Documentation like your tax returns, pay stubs, and verification of assets is essential in determining your capacity. Once you have a few properties under your belt, you might even qualify for a stated income loan, which allows more flexibility, particularly for self-employed individuals.

Collateral is the property itself. Underwriters assess the loan-to-value ratio (LTV), which is usually capped at 80% LTV for a first mortgage. If you need to finance beyond that, they might offer options like the 80-10-10 or 80-15-5 loans, where second mortgages cover additional percentages.

Finally, character is determined by factors like employment stability, residence history, and even age. Surprisingly, being older can sometimes work in your favor when dealing with underwriters, as they may view it as a sign of reliability.

By mastering the principles of financing real estate, you can position yourself for long-term success and financial freedom. Whether you are just getting started or looking to scale, understanding how to finance your investments efficiently will help you grow your wealth and build a solid portfolio.

Learn All 10 Secrets! Free E-Book

There is so much more to learn about financing real estate. That’s why I wrote a free e-book, “Top 10 Real Estate Secrets: How to Grow Your Portfolio Faster.” Learn more about what types of loan products are available and how to negotiate the cost of a property. You can download the free e-book by filling out the form below.