How do I finance an off-market purchase?
Traditional financing
Conventional bank loans work for off-market deals if the property is in good condition and you can wait 30–60 days to close. FHA and VA loans have stricter property standards, which can be a hurdle for fixer-uppers.
Portfolio loans from local banks or credit unions can be more flexible for unique properties, but often require a relationship and larger down payments.
Alternative financing options
Hard money loans are short-term, high-interest loans (typically 8–15% interest, 2–5 points) based on the property's value, not your credit. They're ideal for fix-and-flips but expensive for long-term holds.
Seller financing, where the seller acts as the bank, can be a win-win: you get flexible terms, and the seller gets monthly income. Private lenders (individuals) may offer better rates than hard money if you have a network.
- Seller financing: negotiate down payment, interest rate, and term.
- Hard money: fast closing, but high costs; best for short-term projects.
- Private money: from individuals; rates vary, often 6–12%.
- Home equity line: use equity from another property.
- Partnerships: bring in a money partner for a share of profits.
Common mistakes
- Assuming you need a traditional bank loan—off-market deals often require creative financing.
- Using hard money for a long-term hold without a plan to refinance, leading to high interest costs.
- Not having a backup financing plan if the seller's terms fall through or the bank denies your loan.
