Some investors may believe the headlines and assume that nobody's lending money anymore -- and certainly not for small residential rental projects.

But the reality is a little better than that. If you can come up with a downpayment, and are prepared to document income, assets and a solid appraised value, there are still some willing and able funding channels open to you.

They're basically in three categories:

Portfolio lenders such as regional or smaller banks and savings institutions who continue to offer carefully-underwritten, specialized niche products for small investors.

Second, Fannie Mae and Freddie Mac, who continue to fund single and multifamily loans, although with lots more restrictions than before.

And finally -- if either of these two don't work for you -- you can explore the so-called "hard money" lending route, which will almost certainly cost you a lot more.

Let's start with number one: As just one example, Home Savings of America in El Segundo, California, still offers jumbo investor loans on one to four unit rental properties with a proprietary "pay option" adjustable-rate program, according to loan officer John W. Barnes.

You've got to sink some serious equity into the deal up front: Maximum loan-to-value ratio is 60 percent and you need to come to the table with a minimum 680 FICO score.

There are also some geographic limitations, but if you get through these hoops, you might qualify for a fully-indexed 6.65 percent rate, with a 40-year term and an "MTA" index tied to the average monthly yield of Treasury securities over a one year period.

Barnes told Realty Times that "properly underwritten," payment option loans "are still a very good program" for investor applicants and the lender.

For investors looking for a more plain-vanilla, 30-year, fixed rate mortgage, Fannie Mae continues to offer loans to rental property purchasers. But again, you need solid equity up front and higher credit scores than in the past. Even on loans with 30 percent down, Fannie is tagging on a 1.75 percent adverse market delivery fee on investor mortgages. Once you're over 80 percent LTV, the fee goes to 3.75 points.

Finally, if all else fails, there is traditional "hard money" financing -- just ask local mortgage brokers who's in the market with the best programs. Since hard money investors are all about collateral and yield, be prepared to put a lot into the deal up front, and to pay double digit rates over a relatively short term.

Published: October 31, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.