5 Ways to Finance a Rental Property That Nobody Talks About

Henry:
Financing real estate deals can be one of the biggest barriers to entry when investing. It’s also one of the reasons investors stop scaling before they ever get to financial freedom, and you’ve probably already heard of all the big ones. We all know conventional loans, FHA, loans lines of credit, but what we’re going to share today are five loans you’ve probably never heard of. In fact, these have flown under the radar so well that we didn’t even learn about them until we were years into real estate investing. We’re talking about things like zero down payment loans with no closing costs, 5% interest rates and no credit check or a loan. You don’t even need to go to a bank to get. If you’ve heard of all five of these, you’re probably an expert investor, but if you’re struggling to scale or you need a hand buying your first property, you cannot miss this episode. We’re breaking down all five options so you can decide what makes the most sense for your financial situation. What’s going on everybody? I am Henry Washington, co-host of the BiggerPockets podcast, and I’ve got my other co-host, Dave Meyer here with me today. We’re talking about financing options You might not know about this isn’t FHA loans and HELOCs. We have five ways to finance deals that often go under the radar. So let’s jump into the first one. NAL Loans.

Dave:
I got to be honest, man, I didn’t know what this is when we were creating this show and honestly there’s a whole chapter in one of my books where I just list out every kind of loan and I didn’t know about this one. This is genuinely a cool under the radar, really awesome, powerful type of loan that everyone should know about. Now that I know what it’s

Henry:
Absolutely. So I did know about this one and it is a phenomenal loan option for people. So NAONE stands for the Neighborhood Assistance Corporation of America and it’s a nonprofit and they specialize in helping people who are either in underserved communities or who may not traditionally qualify in terms of credit score or financial situation to purchase a home. And this program provides them the opportunity to do that. And with this loan you can typically get financed, you can get a lower interest rate, so lower than the prime rate, sometimes substantially lower than the prime interest rate.

Dave:
Yeah, the rates for this right now are 4.75 to 5.25, 4.75 outside of COVID. That’s the best mortgage rate you can get. Basically,

Henry:
It’s a cheat code with the terms because yes, the interest rates are great, but you also don’t have to bring a down payment and you don’t have to pay the closing costs. It’s kind of insane.

Dave:
Unreal. It’s crazy. There are other programs out there for lower income Americans like FHA is the most common one, but FHA has PMI, if you’ve heard of this is private mortgage insurance. Basically if you bring less than 20% down on an FHA loan, they hit you with a fee. So your mortgage payment, even if you get a slightly lower mortgage rate, is usually higher than it would be. So it does have benefits. FHA loan is a good product and we talk about it a lot on this show, but this doesn’t have PMI, so you are truly getting that 4.75 or 5% mortgage rate that you wouldn’t be able to get pretty much anywhere else in the market right now. And this is designed to help people who come from a lower or moderate income background. So this isn’t just, there are ways for rich people to get lower mortgage rates, but this is actually a way for people who are just starting their journey for wealth and financial freedom to get that lower mortgage rate.

Henry:
And I know everybody’s listening like, man, this sounds too good to be true. Why doesn’t everyone do it? And there is some caveats. One of the caveats is it takes a long time to get financed. On average, you should assume it’s going to take you anywhere between six months to a year to close your property,

Dave:
But you know what will take longer? Saving up for a down payment and repairing your credit, that’s going to take a lot longer. Fair, and you still won’t get four point a half percent. Exactly. Yeah, you’re still going to get paid 7%. So yeah, I love that.

Henry:
There’s a lot of hurdles to go through with this loan. Obviously one of the main things is you have to sign up to take a workshop to start your process and they only do the workshops at certain times and in certain places, and so you’re kind of at their behest when you get started and then it is going to require a lot of paperwork. A lot of your financials you’re going to have to provide, and I know you have to do this with normal loans, but it can seem or be a little excessive, but if you can get past all of the red tape, you truly can get an amazing loan product. And one of the best parts about this is you can buy multifamily with it up to four units. Matter of fact, they encourage you to buy multifamily with it.

Dave:
I am hesitant to say there is one loan product that’s right for everyone, but if you qualify folks who have more than a hundred percent of the median income for their area face different requirements. But if you fall below the median income in your area, you should absolutely go check this out. And I know people are like, I don’t want to go do training, but it’s probably a good thing, right? They’re probably going to teach you how to be a good landlord, how to make sure that you service this loan, how to make sure you meet all the requirements and get through the underwriting as quick as possible because I’m guessing if you don’t really pay attention, it’s more like one year rather than six months, and that can make a big difference as well. I love this idea of this loan and I was about to ask you who should apply for this, but I’m kind of like anyone who meets the qualifications that I should apply for it.

Henry:
Goodness, I’d do it. I’d do it if I could to get a loan.

Dave:
See, totally one question. Do you know can you move out and keep the loan or do you have to refinance it if you move out?

Henry:
I believe you have to refinance it if you move out. It’s meant for owner occupants, but man, what an amazing opportunity to get into a property, especially if you get into a property and you get yourself a little bit of discount, now you’re walking into a little bit of equity, you’ve got a 4% interest rate. They’ll allow you to qualify for more home if you’re going to buy multifamily because they consider the income the other units produce as more income for you. Oh, that great. So you can buy a more expensive property and then house act that property, and then they’re going to train you, like you said, to help you make sure that you have all of the tools necessary to maintain this loan. It’s a phenomenal product.

Dave:
It seems like they’ve created a really good loan for folks who are on the lower to moderate end of the income spectrum and allow them to get into homeownership. I love it. It’s a NCA loan. Do you know where people go to apply for this?

Henry:
Yeah, you just go to their website, believe it’s nca.com, aca.com, and that’s where you can register and get more information. I also believe they have NACA sponsors or counselors all over the country, so you can potentially reach out to one of them and chat with them first about what all the requirements are going to be so that you can be better prepared for the process. But this is a no brainer to me if you are looking to buy a home anytime soon.

Dave:
Alright, well let’s move on to our second under the radar financing strategy, which is USDA loans. That’s right. The US Department of Agriculture helps people get mortgages. These are the same people who grade your stakes as either prime or whatever else. They grade your stakes as these people are also giving out mortgages. Now, USDA, as you might imagine, US Department of Agriculture, these are mortgages that have to be located in a designated rural area, so these are not in cities, but if you’re thinking, oh, that means that I’m not going to be able to use this. 97% of the US landmass is designated as one of these areas. So this is like most of the country, not by population, but by landmass. And there are a lot of suburban type areas that are within 15, 30, 45 minutes of major cities that actually qualify for this. The other requirements are income related, so similar to the NAPAL loans, most of these income restricted types of loans are based on the median income and for USDA loans you have to have 115% or less of the median income.
So you can make 15% essentially higher than the median income in your area, but no more than that. To qualify for this, and this too, like your NACA loan does have to be your primary residence. You have to live in it. It can’t be your lake house, it can’t be your hunting cabin. That sounds nice. You have to actually live in this property. But if you do, the benefits are that you get a hundred percent financing. You could have zero money down to go out and buy a primary residence or a house hack just like the knack alone, and you can get below market rates. Right now it’s not as low as the NACA loans, but it’s about 5.6%, which in my mind, fantastic interest rate if you could get a 5.6%. That’s the difference between some deals cash flowing and not cash flowing. And honestly, if you’re doing a house hack, you don’t need a cashflow, but it’s just going to keep more money in your pocket every single month so you have that benefit.
The other benefit and why, if you can use this over an FHA loan, I usually recommend it is that there is PMI that private mortgage insurance we were talking about, but it’s lower so you don’t have to pay as much as an FHA loan and the underwriting is pretty flexible, so it’s not going to be, I mean all underwriting’s annoying. Let’s be honest. You’re applying for a mortgage and it’s not A-D-S-E-R loan. You’re probably going to be a little bit annoyed by it, but this is slightly less annoying than other types of mortgages. So even though there are requirements, again, this is one that’s just absolutely worth it.

Henry:
I feel like this one’s under the radar along with RD loans. So the rule development loans, because most people don’t take the time to just figure out if the property they’re considering buying could fit as a rule development or A-U-S-D-A loan, just do a little bit of research. There are so many more homes in your market that would probably qualify this than you would ever think of

Dave:
A hundred percent.

Henry:
So if you’re looking into buying a home and it’s not in a direct giant metropolis, you should look into it and see if it qualifies. And B, if you are a flipper or you’re selling a property, make sure that you go figure this out so that you can advertise to your buyers that it will qualify for A-U-S-D-A or rule development loan so that you can get more buyers that want to buy your property. Very smart. And what I like about this one is you don’t need the highest credit score to qualify like six 20 to six 40 I think is the

Dave:
Minimum

Henry:
That they’re looking for. And that’s pretty good to get a zero down payment loan.

Dave:
I love it.

Henry:
Do the research. It doesn’t take long for you to go figure out if this will qualify. You can literally ask a question and find out if Europe property you’re looking for qualifies for this.

Dave:
Some of the people who have been most successful in this era of real estate that we’re in right now have been small town investors.
And I’m not talking about how I make fun of Henry for being in Arkansas. That’s not a small town that’s like a major city. You’re talking about like 20,000, 50,000 people. Those places have cash flowing deals, they just do and they qualify for these kinds of loans. So this could be a really good strategy for people who live in those areas. I wouldn’t recommend just going out and picking a random small town, but if you’re from a small town, if you’re from a place where you can qualify for these kinds of loans, it’s such a good way to start your career. And unlike the one benefit this has over the knack alone is that you can keep the loan after 12 months. It’s like an FHA loan where you can actually move out and go buy something else and keep that mortgage. This is such a good way to start a real estate investing portfolio.

Henry:
Yeah, I think this is great because if you use A-U-S-D-A loan to buy a property, you live in it for a year, you can then go and use an FHA loan for the next property. You do have to live in it, but it’s a great way to slowly build a real estate portfolio by living in it without having to spend a ton of money, 0% down on your frozen loan, three and a half percent down on the second FHA loan. I mean, that’s pretty incredible.

Dave:
It’s a great, great product that I think most people are missing. How do people do this? I just don’t even know how you contact the USDA.

Henry:
So if you go to the USDA website, I believe they have an eligibility map, so that will help you be able to at least spot check and see if your property is in an area that would qualify. Or you can just search for USDA approved lenders. So search like USDA approved lenders in x, Y, Z, city and state and you should get a list or just call your local credit unions or local regional banks and see if they have somebody in-house who can help you with A-U-S-D-A loan. That’s where I would start.

Dave:
So these are two incredible programs that you should be checking out, but maybe you’re feeling nostalgic for the COVID era interest rates two, three, 4% like everyone really misses right now. After this quick break, we’re going to share two different strategies for you where you can get those mortgages back. Stick with us.

Henry:
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The seller becomes the bank. So this works in situations where you’re buying a property from a seller and that seller owns the property free and clear. And since the seller doesn’t have a loan against the property, technically you can make your loan payments to the seller. So it’s like buying a property in installments directly from the seller. Why is this important? There are a lot of sellers, especially as we get more and more into the silver tsunami where the baby boomers are looking to exit the market, sell off some of their real estate. Well, they have a lot of paid off real estate and if they’re an existing landlord, they already understand the value of getting monthly income, and so a lot of them would like to continue to get monthly income. What they’re tired of is dealing with tenants and toilets. Another reason why sellers would do this is because it allows them to defer taxes. They don’t have to pay a big capital gains hit because they didn’t sell their property outright. They only have to pay taxes on the income they’re making each month, so it slows down the tax burden and kind of spreads it out over time for them.

Dave:
I just love the flexibility of seller financing. It’s just basically like you two people talk to each other, you figure out what works for you.

Henry:
Absolutely.

Dave:
You just kind of can discuss with the person, what should your down payment be? What should your interest rate be? What is the term of the loan, what’s the amortization of the loan? It’s just up to you if you like negotiating or problem solving. If you have the idea of finding mutual benefit, this can be a great option for you and you could really cater it to your specific needs. Some people will use it when they’re like, I have a great credit score but I don’t have a down payment. Or some people are like, I have a down payment, but this deal doesn’t work at conventional mortgage rates, so I need a lower mortgage rate. And you can sort of work with the seller to figure out what makes the deal pencil.

Henry:
What I love about this is you can absolutely get a low interest rate if that’s what you and the seller negotiate. You can get no interest rate if that’s what you and the seller negotiate. So as an investor you can specifically target this. So even if you’re buying homes on the market, you can have your agent help you filter out homes that they think the mortgage is free and clear based on the history. That is something your agent can actually look up on the MLS and then help filter that out for you so that your targeting homes, that would make sense for an owner finance offer. And if you’re buying off market, you can specifically pull lists and just filter out everybody that doesn’t have a hundred percent equity in their home. So now you’ve got a targeted list of deals that may have owner financing potential. What I think about with seller financing is what’s it called? Seller financing. And that means to me, when I’m going to negotiate seller financing, I need to figure out what are the needs of the seller and then I can turn the levers that the seller wants in their favor and then I can turn the other levers in my favor.
And so if I have a seller who’s selling a property and that seller says, Hey, I got to get my price. I’m not selling this thing for anything less than $300,000 and I need $1,500 a month, well then I can go put 300,000 and $1,500 a month in an amortization schedule and then I can turn the other levers in my favor, and so I can maybe buy a property with no down payment and I can buy a property on a 10 year mortgage
In order to help him heat his sell price of $300,000 and a $1,500 monthly payment. And so it’s mutually beneficial, but I think a lot of people look at seller financing in the wrong way. They want to approach it as a, what do I need? But if you approach it and figure out what, because the seller’s only going to care about a couple of things, some sellers are like, I need a chunk of money. And I say, okay, well I can give you a down payment as long as I’m paying no interest or a very low interest rate. And so it is a true negotiation, but you work it out in a win-win situation. If they want all the levers flipped in their favor, then you probably need to go get a traditional mortgage. But if you can 50 50 it and they get some wins and you get some wins, you can get yourself a sweet deal with some sweet terms.

Dave:
The other thing I want to call out about seller financing is unlike NACA and the USDA loans, this doesn’t need to be owner occupied. This is not a house hacking only strategy. This is a way you can build your portfolio indefinitely. Like we were saying, there’s unlimited really options for how you’d use these kinds of loans. So I think seller financing good for everyone. It’s just finding them. That’s hard. You have to be diligent about pursuing them. You have to follow Henry’s advice about deal finding and marketing yourself. If you really into do that, this is a great option for anyone.

Henry:
Absolutely.

Dave:
Alright, that was our third strategy that you are probably not thinking about in 2026. Moving on to our fourth is assumable mortgages. Now, we’ve talked a lot about, this has been in the news a lot recently because there is announcement about the idea of portable mortgages. That is not what we’re talking about here. A portable mortgage is the idea that you have a house, you already own it, you take your mortgage and you bring it with you to the next house. This is kind of the exact opposite of that, whereas the mortgage stays with the house even when the seller leaves. So if you as a buyer approach someone who has an assumable mortgage and they bought their home with a 3% mortgage rate, you can just take over that loan from that, you can assume the mortgage from them. Now, there are a lot of caveats about this and there are different qualifications, but if you can pull this off, this is an unbelievable option because there are people out there with 3% and 4%.
There might even be people out there with 2% mortgage rates that if you can get your Henry asked one, if you can get your hands on that, go get your hands on it. That is unbelievable opportunity. Now, the requirements are that this is also another owner occupied strategy. You do need to actually go live in these house and the type of loan when it was created really matters. It can’t just be you went out to Wells Fargo with Chase and got a mortgage, they’re probably not going to make that loan. Assumable. Most conventional mortgages have what’s called the due on sale clause, which means when you sell it, you got to pay back your mortgage. But if you have an FHA loan or a VA loan, if you’re current or former military member or those USDA loans that I was talking about before, these are all typically assumable mortgages. So if you’re looking at house hack or buy a primary residence right now, honestly, this is great for if you want to do a live and flip too, this is a great way to go do that as well. So I just love the idea of consumable mortgages, kind of similar to seller finance where you have to go hunt them, right? They’re not just out there for any property you want to go buy, but if you’re willing to do the work, it’s amazing.

Henry:
I mean, I think it’s a fantastic strategy. Again, the hard part is finding people willing to do it. There are plenty of them out there, but it’s going to take you some work to do some digging to find the people who would be willing to do that. But yes, you can assume a mortgage, sometimes you got to take some cash out of your pocket, pay the seller some cash and then take over their mortgage. I’ve heard of people doing this without having to pay a ton of cash to walk into it. It just depends on what situation that seller is in and that will determine how willing they may be to hear an offer where you would be assuming their mortgage. But the situations do happen.

Dave:
The big caveat with these kinds of mortgages is that you have to pay the seller full price, right? So
Just for example, if they bought their home at $300,000, maybe they put 20% down, they’ve paid it down, now their mortgage is just $200,000, great. You’re assuming a $200,000 loan hopefully at a really low mortgage rate, good for you. But maybe over their time, if they bought it during COVID, now that property’s worth, let’s just say $500,000. Someone’s got to pay that extra $200,000 between what they bought it for and what you are buying it for. And so you either need to bring that money to the table or you have to go out and get a secondary mortgage. Often even if you get a secondary mortgage that’s still cheaper with the blended rate than going out and getting a conventional mortgage. But they’re not just selling you their mortgage, they’re selling you the house at current market rate, and you have to sort of make good on that gap in equity. So how do you find people like this? I mean, I assume some people are smart like you and are marketing it if they have an assumable mortgage, but are there other strategies for finding them?

Henry:
If you’re looking on the market, the best way is to again, have your agent help you filter out the homes that are financed with one of these types of loans. That is information you can get access to typically on the MLS. Or if you don’t, then you can sometimes look in the county records to find out who the mortgage holder is. But there are options. So you need to find out, first of all, if the loan used to buy it is a type of loan that’s assumable. And then if you’re shopping on the market, really the only way to figure out if it’s possible is to make an offer. And so it’s just going to take some communication between your agent and the seller’s agent because that’s the true magic. You have to make sure that your agent understands this method and can explain it to another agent clearly so that they can explain the value in it to their client. That’s where a lot of the gaps fall apart. And so make sure your agent is educated and make sure you’re able to have your agent talk to the other agent in the language that’s important to them, understanding that, hey, they’re not taking a loss here. They’re still getting their price, you’re still getting your commission. We’re actually probably going to be able to get the deal done a whole lot faster because of this situation. Absolutely.

Dave:
So we got four fantastic options for financing properties, even in a higher interest rate market like we’re in today, but we have even more for you, including loans that are specifically designed for us. They’re designed for small investors. We’ll share that strategy right after this quick break.

Henry:
Welcome back to the BiggerPockets podcast. We have been talking about lesser known financing options, and now we’re about to dive into a very specific financing option that’s made for people like us, the entrepreneurs of the world. So this option is called the Non QM loan, which stands for Non-Qualified Mortgage. Some people also call him bank statement loans. These loans are designed specifically to help the entrepreneur and not just a real estate entrepreneur, but if you think about the person who’s a hairdresser or the person who owns their own tax consulting company, these people struggle sometimes to qualify to buy a home because banks truly value W2 income well over entrepreneurship income, and sometimes you can make a lot of money as an entrepreneur and still not be able to qualify to purchase a home.

Dave:
It’s a really just annoying limitation of conventional mortgages. I just feel bad. There are so many people, even real estate agents, you’re in real estate. You probably, even if you’ve been doing it for years and you make a good amount of money, you’re still limited by these rules that are annoying. They annoy me.

Henry:
It baffles me. When I left my job, I left my job before my wife left hers, and I remember I was speaking to one of my banks and I told them that I was leaving my job and they said, oh no. And I said, yeah, but I make six times in income what I make in my salary as an entrepreneur. And they were like, yeah, but does your wife still have a job? And I’m like, she makes a fraction of what I make now as a salary job. And they said, long as she’s still got a job, you’re good. Right? It’s mind blowing. But if you’re in that boat, we get it. This is a great option for you. Because what they do, they don’t use your W2 to qualify you. They actually will use your bank statements. So they’ll have you send them your bank statements and they’re going to your income and the frequency of your income based on the deposits that have come into your account. And that way, if you are an entrepreneur and you are making money, this type of loan will allow you to qualify because they’re going to consider those deposits as your income and that will help you qualify to purchase a home.

Dave:
Love this approach. This really just opens up a lot of options for people, but there’s many types of non QM loans. So what are some of the variants people should think about

Henry:
In general with non QM loans? I would expect to pay a higher interest rate than Prime, somewhere between one to 3% higher than prime based on how risky your profile is as a buyer. So it’s not all sunshine and rainbows. Yes, there’s going to be some caveats here, but it does give you an option or a pathway into ownership that you may be blocked from.

Dave:
No one’s giving this away for free, right? Lenders are not in the business of lending to be kind to you. No one’s like, oh, I just want to earn less money than I could. But a lot of them say, Hey, there’s a whole business of lending to people who don’t qualify under these very strict rules for conforming mortgages. And I am willing to lend to them, but because they do not, I can’t sell these mortgages as mortgage backed security. Some non qms you can, but because or because they don’t have a W2 job, it’s riskier. And any lender will tell you that the higher the risk of the borrower, the higher the interest rate they need to charge to compensate for that. So you just need to think about that. Any situation, unless it’s like NACA where it’s backed by a nonprofit where they’re not trying to make money or USDA where it’s a government sponsored thing where these are not for-profit institutions.
Anytime you’re dealing with a for-profit institution, if you are looking to make a lower down payment, if you are looking to step outside their comfort zone, their little box that they like to lend in, they might do it, but they’re going to charge you more. Absolutely. And that’s okay. That’s just their business. And it makes sense honestly, if you think about it from their perspective. So you just need to decide if you are willing to do that and or just only find deals that work with those higher rates. That’s just how it’s got to be. And I think everyone’s coming around to those terms right now. Sellers are getting a little bit, are understanding this, and so there are absolutely deals that make sense with these higher rates. And it’s not like they’re 9%, it’s a little bit higher, like Henry said, 1% higher perhaps, or maybe a larger down payment, or there might be other terms in there like prepayment penalties that you really need to look out for because these are ways that lenders are trying to mitigate that

Henry:
Risk. You’re absolutely right, and I think managing your expectations when going into a loan like this is important. And so some of the things to expect, like we were talking about are interest rates being higher than the prime rate. Even if you have a good credit score, expect to pay a point at higher than what’s than prime expect to pay anywhere between 10 to 25% down on average. Could be more depending on the situation, the type of property you’re buying. These are 30 year amortization loans, so that’s a good thing. If you’re looking for more cashflow, there are some interest only options available depending on what you’re doing with the property. So you could be paying interest only so those could come into play. If this isn’t a property you plan on holding for a long period of time, that may end up saving you some money. They don’t have PMI, so that’s positive. That might save you a little bit to offset some of the additional expenses. And the approvals are typically faster than a conventional mortgage or like A-D-S-E-R. It moves a little quicker. So there’s for sure,

Dave:
And there are tons of banks that do this. This isn’t, you have to go hunting for them. If you go to BiggerPockets, there are lenders out there who do these kinds of loans. If you go to networking events, you can definitely meet lenders who do these types of things. It’s a lot of local institutions, smaller banks. So you could just probably Google too, where can I get A-D-S-C-R loan in my area? So check that out.

Henry:
Alright, well hopefully that was extremely helpful for you. Those where five financing strategies that are lesser known that you can be using to help you learn how to invest in real estate. As always, thank you so much for listening, Dave, thank you for all your input and we’ll see everybody on the next episode. I.