Creative
Debt

HELOC — the investor’s credit card

A HELOC (Home Equity Line of Credit) is a revolving line secured by real estate equity. 10-year draw period followed by 20-year repayment. Interest-only during draw.

• On primary residence. Most liquid, best rates (Prime + 0–2%). 80–90% CLTV (combined loan-to-value with first mortgage). $250k–$500k typical limit, $1M+ on jumbo.
• On investment property. Fewer lenders. 60–75% CLTV. Rate 9–12%. $100k–$250k typical. Many local credit unions and community banks offer.
• On free-and-clear property. Higher LTV possible (up to 80%), better rate. Treated like a first mortgage.

Use cases: down payment on acquisition, bridge financing during BRRRR, earnest money on fast-close deal, cash infusion for PITI reserves or rehab. Always pay back at refinance or cash exit.

Assumable mortgages — rate arbitrage

Assumption lets a buyer take over the seller’s existing mortgage, rate and term intact. In a high-rate environment, assumable loans at sub-4% rates from 2020–2021 are worth a significant premium.

• FHA. Fully assumable with lender approval. Most common assumable. Assumer qualifies via standard FHA underwriting; debt-to-income, credit, residual income.
• VA. Assumable with lender and VA approval. Funding fee 0.5% of loan paid at assumption. VA eligibility not required for assumer (non-vet can assume).
• USDA. Assumable under standard USDA income limits.
• Conventional. Typically NOT assumable (due-on-sale clause under Garn-St. Germain). Rare exceptions: some pre-1982 mortgages, certain portfolio loans, construction- to-perm conversions.

In 2026, a 2021-originated FHA loan at 3.25% with $300k balance on a $450k house is genuinely more valuable than the equity: buyer saves $400–600/month vs. a new 6.5% mortgage. Sellers routinely command 5–15% premium for "assumable, lock-in rate" listings.

Wrap mortgage / AITD (All-Inclusive Trust Deed)

Wrap: seller keeps existing mortgage, sells property to buyer on new mortgage that "wraps around" the existing. Buyer makes payment to seller; seller continues paying underlying lender. Spread between the two rates is seller’s profit.

• Example. Seller has $200k mortgage at 3.5%. Sells property for $400k with $50k down and $350k wrap at 7%. Seller keeps $50k down, collects payment on $350k at 7%, pays $200k at 3.5% — net spread = 3.5% on $200k + full 7% on $150k.
• Due-on-sale risk. Most underlying mortgages have Garn-St. Germain due-on-sale trigger. Lender can call loan on discovery. Mitigated (imperfectly) by land trust transfer — unrecorded or private-record title changes.
• Servicing. Licensed servicer essential. Keeps seller out of Dodd-Frank/SAFE Act issues and manages escrow.

Delayed financing exemption

Fannie Mae and Freddie Mac rules: if you buy a property with documented cash (no private loan), you can cash-out refinance up to the purchase price + documented improvements within 6 months of closing, without waiting the standard 6-month seasoning. Eligibility:

• Purchase closed with documented cash (HUD-1 shows cash)
• No existing liens on property
• Funds sourced from buyer’s liquid assets (not gifted, not private loan)
• Refinance loan amount ≤ purchase price + closing costs + documented capital improvements
• Title insurance and note documentation preserved

Useful when a cash offer wins the deal but you didn’t want to tie up cash. Close cash, refi to conventional rate within 6 months, recover capital.

Construction-to-perm

Single-close loan for ground-up construction or major renovation. Funds construction draws during build period, then rolls to permanent financing at project completion.

• 12-month construction period typical
• Interest-only during construction, charged on drawn balance
• Automatic conversion to 15/30-year permanent financing at CO
• Single closing, one appraisal (subject-to-completion)
• Eligible for conventional (owner-occupied primary) and some portfolio (investor)

Interest-only loans

IO loans pay interest only during an initial period (typically 5–10 years), then convert to fully amortizing (or balloon). Returning to prominence in the post-QM portfolio and non-QM lender space.

• Cashflow optimization. Lower monthly payment during IO vs. amortizing payment. Improves cash-on-cash return and DSCR.
• Reset risk. At IO end, payment jumps dramatically — both due to principal amortization AND rate reset.
• Common on value-add / bridge. IO during construction and lease-up, refinance to amortizing permanent at stabilization.

Private money

Friends, family, high-net-worth individuals lending directly. Flexible terms, fast close, relationship- priced. Must navigate Reg D if raising from multiple investors (see dedicated syndication reference).

• Single lender: no Reg D issue. Private note and mortgage.
• Multiple lenders pooling into fund: Reg D 506(b) or (c) required.
• Typical rate: 8–12% first position, 10–15% second position
• Typical term: 12–36 months, IO or amortizing
• Servicing via licensed servicer recommended

Common pitfalls

• HELOC rate rise. Variable-rate HELOC climbed from 4% to 9% 2022–2024. Monthly interest-only payment tripled. Plan payoff before rate exposure becomes material.
• Assumption timeline. FHA assumption can take 45–90 days vs. 30 for new conventional. Seller may lose patience.
• Due-on-sale trigger on wrap. Lender discovers title change or payment from different party. Calls loan. Must refinance or unwind.
• Delayed financing not qualifying. Source of cash funds not adequately documented, or private loan found in records. Must wait 6-month seasoning.
• Construction-to-perm overrun. Project over budget, appraiser at completion doesn’t support target value. Forced to bring cash at conversion.
• IO payment reset shock. 10-year IO loan converts to 20-year amortizing. Payment increases 40–60%. Property didn’t appreciate enough to support refinance. Stuck.
• Private money documentation gaps. Handshake loans that weren’t properly documented or collateralized. At default or dispute, unenforceable or at best expensive to collect.