By Chloe Mitchell 
Getting started in real estate investing is exciting—but figuring out how to finance your first investment property can feel overwhelming. Luckily, with the right strategy and a clear understanding of your options, you can take that first step with confidence. In this blog, we’ll break down the best ways to finance your first property in simple terms that are easy to understand.
Know Your Budget First
Before you even look at financing options, it’s important to know your budget. Figure out how much you can afford to invest without putting your personal finances at risk. Start by reviewing your income, savings, and existing debts.
This will help you estimate how much you can comfortably spend on a property. It will also show lenders that you’re financially responsible—something they love to see. Don’t forget to include costs like closing fees, insurance, repairs, and property taxes when planning your budget.
Save for a Down Payment
One of the first things you’ll need is a down payment. Most lenders require 15% to 25% down for investment properties. This is usually more than what’s required for a primary home.
The more you can put down, the better your loan terms may be. A larger down payment can also help you avoid private mortgage insurance (PMI), reduce your monthly payments, and increase your profit potential.
If you don’t have enough saved, consider cutting unnecessary expenses or finding a side hustle to boost your savings.
Check Your Credit Score
Your credit score plays a big role in how easy it will be to get approved for a loan—and at what interest rate. A higher score means better terms, lower interest, and more financing options.
Try to aim for a credit score of at least 680 if you want access to the best investment property loans. If your score is lower, take time to pay down debt, make payments on time, and avoid opening new credit accounts.
Traditional Bank Loans
Traditional loans are one of the most common ways to finance an investment property. These are mortgages offered by banks or credit unions.
To qualify, you’ll need a solid credit score, steady income, and enough cash for a down payment. Banks will also consider the potential rental income of the property, especially if it’s your first investment.
While these loans have stricter requirements, they often offer lower interest rates and longer terms, which can help you manage your monthly payments.
Government-Backed Loans
While most government-backed loans (like FHA or VA loans) are meant for primary residences, there are ways to use them to your advantage.
For example, you could buy a multi-unit property (up to four units) using an FHA loan and live in one unit while renting out the others. This allows you to take advantage of low down payments and flexible credit requirements while still generating rental income.
Once you’ve lived there for a year, you may even be able to move out and turn the entire property into a rental.
Hard Money Loans
Hard money loans are short-term loans offered by private lenders. They’re based more on the value of the property than your credit score.
These loans are fast and flexible, making them a popular option for house flippers or short-term investors. However, they come with high interest rates and shorter repayment periods.
Hard money loans are best if you have a plan to improve the property quickly and sell or refinance within a short time.
Private Lenders and Partnerships
If you have friends or family willing to invest with you, private lending or partnerships could be a great way to fund your first property.
In a partnership, one person may provide the funds while the other manages the property. This approach lets you break into real estate with less personal capital, but it’s important to put everything in writing.
Clear agreements help avoid misunderstandings and ensure everyone knows their roles, returns, and risks.
Home Equity Loans or HELOCs
If you already own a home with equity, you might be able to use it to finance your investment property.
A home equity loan gives you a lump sum based on your current home’s value. A home equity line of credit (HELOC) works more like a credit card, letting you borrow as needed.
These options offer lower interest rates than other loans, but they use your home as collateral. If you can’t repay, your home could be at risk—so be sure your investment plan is solid.
Seller Financing
Seller financing happens when the property’s seller agrees to finance the purchase instead of a bank.
You and the seller agree on terms like the down payment, interest rate, and repayment schedule. This can be useful if you can’t get traditional financing or want a more flexible deal.
Not every seller is open to this, but motivated sellers or those with fully paid-off properties may be more likely to consider it.
Rent-to-Own Strategy
A rent-to-own deal allows you to rent a property with the option to buy it later. Part of your rent may go toward the purchase price.
This gives you time to build credit, save more for a down payment, or get financing ready. It also lets you “test drive” the property before fully committing.
Just make sure the agreement terms are clear, fair, and reviewed by a lawyer.
Real Estate Crowdfunding
Crowdfunding platforms allow you to invest in real estate with other investors, pooling money to fund larger projects.
This is a low-barrier way to get into the game without buying a property on your own. While it won’t give you direct ownership, it’s a good way to earn returns and learn the market.
Look for trusted platforms and always read the fine print on how profits, losses, and risks are shared.
Final Tips Before You Buy
Always do your research before choosing a property. Run the numbers to see if it makes financial sense. Factor in costs like repairs, maintenance, and vacancies.
Work with professionals—like a real estate agent, mortgage broker, or accountant—who understand investment properties. They can guide you through the process and help you avoid common mistakes.
Make sure you also have a plan for property management, whether it’s DIY or hiring help. The better you manage your investment, the more profitable it will be.
Conclusion
Financing your first investment property doesn’t have to be complicated. With some planning, research, and creativity, you can find a method that fits your financial situation and goals. Whether you go the traditional bank route, explore partnerships, or tap into equity, there are plenty of options to help you take the first step in real estate investing. Focus on building a strong foundation now, and you’ll be setting yourself up for long-term success. Your first property could be the start of a very rewarding journey.