Financing and funding
January 31, 2024

Common Types of Mortgages and Financing Options in Real Estate

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In the world of real estate, the choices you make about your mortgages can greatly impact your financial future. Knowing your way around the mortgage landscape is crucial for smart decisions that align your investment goals. Together we’ll explore the importance of these choices and review the most popular mortgage options.

Remember: a mortgage is an agreement between a borrower and a lender. The borrower agrees to repay a loan (usually with interest) within a specific term. In case of failure to do so, the lender may take ownership of the borrower’s property.

Common Types of Mortgages in Real Estate

First Mortgage

A first mortgage is the primary loan used to purchase a property. As the borrower you have 15, 20, or 30 years to pay it back, making it a long-term commitment. Your property acts as collateral to secure the loan. If you can't keep up and default, the lender can take over your property (also known as foreclosure). This low-risk option often comes with lower interest rates, making it an appealing option for homebuyers. Some first mortgages come with mortgage insurance, providing protection to the lender in case the borrower defaults on the loan. It's like a safety net for the lender, ensuring they're covered when it counts.

Second Mortgage (Home Equity Loan)

A second mortgage, or home equity loan, allows you to borrow against the equity you’ve built in the property. It doesn’t replace the existing mortgage, but is a smaller loan against cash value in the property. This cash can be used for various purposes, such as home improvements, debt consolidation, or as the down payment on another property. The loan amount is determined by the difference between the property's current value and the outstanding balance on the first mortgage. It's a way to unlock the value of your home. Because it's a second loan, the bank is taking a bit more risk. Therefore the interest rates can be higher than the first loan. Also - you will have to pay it back quicker than the first mortgage, usually in 5 to 15 years


Refinancing involves replacing your existing mortgage with a new one from your own bank or a new bank altogether. This is often done to secure a lower interest rate, reduce monthly payments, or switch from an adjustable-rate to a fixed-rate mortgage. The new mortgage immediately pays off the old one, and you start fresh with different terms. It can be a smart move if interest rates have decreased since you initially took out your loan, if better terms are available, or if another loan program provides you with payment advantages. Such as switching from a First Mortgage loan to a Conventional in order to eliminate mortgage insurance. Waltz has designed special programs for investors looking to improve their repayment terms. Learn more about refinancing options in our blog.

Cash-Out Refinance

With a cash-out refinance, you can borrow more than the current mortgage balance. This extra cash can be used for various purposes, such as home improvements, debt consolidation, or investments in additional opportunities. The loan amount is based on your home's value and the difference between that value and your existing mortgage balance. Usually this is accomplished when a combination of payments and increased home values have led to the property being worth far more than the remaining balance on the loan. Such loans cap at 80% loan-to-value and provide a flexible way to leverage your home's equity.

Reverse Mortgage

Reverse mortgages are tailored for homeowners aged 62 or older. These loans allow seniors to convert the home equity of their personal residence into cash, offering financial relief in retirement. You receive payments from the lender, the bank, and can stay in your home. Effectively the property is financed at current market rate by the lender who pays the homeowner a lump sum and then scheduled payments over time. The remainder of the loan is paid back when the home is sold to a new buyer or when you pass away.

Mortgages for Real Estate Investors

When buying residential property to live in, there are a lot more financing options available than there are for investment properties. Below we will cover those options available to investors looking to finance their next purchase.

Conventional Bank Loans

Conventional bank loans are the standard choice for real estate investors. They come with varying qualifications and down payment requirements. The specific requirements may vary among lenders, but generally, proof of ability to repay the loan (such as a good credit score, income verification, or available capital) and a substantial down payment are essential.

Hard Money Loans

Hard money loans provide short-term financing, often used for property flips or investments with a quick turnaround. These loans are secured by a lien against the property itself, making them accessible to both homebuyers and investors. While interest rates are higher, hard money loans are a lifeline for investors who might not qualify for traditional bank loans.

Private Money Loans

Private money loans involve borrowing from individuals or non-bank entities. These loans offer flexibility and can be tailored to fit specific investment needs. Investors often turn to private money loans when traditional financing isn't an option. Some examples might include: developing mixed use properties, rehabs that require greater capital than the final estimated value, or the borrower not qualifying for the loan. There are entire investment firms set up just to provide these types of loans.

Factors Influencing Mortgage Choices

When it comes to making mortgage choices in the real estate realm, several crucial factors come into play. First and foremost, your financial situation and creditworthiness play a pivotal role in determining the kind of mortgage you can secure. Additionally, the property type and investment goals should align with the chosen mortgage to ensure the investment's success. Furthermore, market conditions and interest rates are essential considerations, as they can significantly impact the overall cost and viability of the chosen mortgage. Moreover, it's important to be mindful of local regulations and lending options, which can vary from one location to another, influencing the types of mortgages available.

To ensure you're making the right choice, there are several tips to keep in mind. 

  1. Evaluate your financial health to determine what you can comfortably afford. 
  2. Have a clear understanding of your investment objectives to select a mortgage that aligns with your long-term goals.
  3. Research local market conditions to anticipate any trends or potential risks. 
  4. Seek professional advice from real estate and financial experts (such as Waltz) to provide invaluable insights and guidance throughout the decision-making process.


Investing in real estate requires making informed decisions on a variety of factors. In this article, we've explored common types of mortgages, financing options for real estate investors, and the factors that influence mortgage decisions. The next step is to connect with a financial professional to ensure you'll be better equipped to make informed choices. Remember, your mortgage isn't just a loan; it's a crucial part of your real estate investment strategy. Reach out to one of our professional investment advisors to talk about Waltz Financing options, and we will help you through every step of the process.

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