Investment property loans are usually found through online mortgage providers, investor-only lenders, and national banks. Investment property loan amounts typically range from $45,000 to $2,000,000 or higher. Rental property loans usually require a minimum down payment of 20 percent. Buy and hold investors generally use long-term investment property loans.
If you’re looking for an investment property loan, check out Visio Lending. They offer 30 year fixed rate loans with competitive rates. They can get you funded in as little as 21 days, allowing you to compete with all cash buyers.
Where to Get an Investment Property Loan
|Online Mortgage Lender||An individual who wants a streamlined application and approval process.|
|Lender for Business Investment||A business with a large down payment that wants to buy multiple investment properties.|
|Online Loan Marketplace||An individual investor who wants to compare lenders on an online loan marketplace.|
Types of Investment Property Loans
When we talk about investment properties, we’re typically talking about residential properties with four units or less. The best investment property loans in these cases are typically conforming mortgages. These loans will generally give you the best rates and longest terms, making them very affordable on a monthly basis.
You can get conforming mortgages from large national banks, online mortgage providers, and lenders that only work with real estate investors. Conforming mortgages generally have fixed rates and the longest terms of all investment property loans. However, there are some limitations with conforming mortgages.
A conforming mortgage typically won’t work for fixer uppers. If you need to do some serious renovations on your property before you can rent it and qualify for permanent financing, you may need a rehab loan. Conforming mortgages are also not a good fit for multifamily properties (residential properties with four or more units) or for investors looking to buy and rent commercial real estate.
Most lenders will not lend to you once you have four active mortgages because the loan requirements under Fannie Mae increase dramatically (such as requiring a 720+ credit score). The most mortgages anyone can have under Fannie Mae rules is ten, but many lenders stop lending to you when you hit four. If you own a large portfolio of rental properties with liens on them, then a blanket mortgage might be a better financing option.
Comparing Investment Property Loans
There are three types of investment property lenders that real estate investors can get a conforming mortgage from. These three lenders are national banks, online mortgage lenders and lenders for investment businesses. In the table below, we compare these conforming mortgage providers:
Conforming Mortgage Providers for Investment Properties
|Loan to Value (LTV)|
(Check Your Score for Free)
|Cash Reserve Requirements|
varies by borrower qualifications
varies by borrower qualifications
|Time to Funding|
1. Online Mortgage Providers for Investment Property Loans
Getting an investment property loan from an online mortgage provider can be more convenient than getting one from a traditional mortgage provider. With an online investment property lender, you don’t have to physically go to a bank to get a loan because the entire process happens online or on your mobile device.
With an investment property lender such as Visio Lending, the application process, approval process and the time to funding are all typically quicker than brick-and-mortar banks. Some of these investment property lenders don’t have debt-to-income (DTI) or income requirements, which is beneficial for borrowers who otherwise wouldn’t qualify. Plus, there is little difference in the rates and fees charged by an online lender than a traditional mortgage provider.
Who Online Mortgage Providers Are Right For
Online mortgage providers are right for prime borrowers who have the requisite funds available for the required 20 percent down payment. These lenders are also a little more flexible on DTI and income requirements, making them good for those who either won’t qualify with a traditional lender or who don’t want to go through the hassle of an extended application.
Online mortgage providers are right for you if:
- You’re looking for a more streamlined application process
- You’re borrowing as an individual and not as a business entity
- You want a mortgage provider that can work with you no matter where your next investment property happens to be
- You don’t want to be forced to go into a bank during business hours
Where to Find Online Mortgage Providers
You can easily find these online mortgage providers by doing a quick online search. One of our preferred online mortgage providers is Visio Lending. They offer a variety of loans, including investment property loans with 30-year terms and competitive rates for prime borrowers. Their pre-approval process can take minutes.
2. Conforming Mortgages from Investor-Only Lenders
Investor-only lenders focus exclusively on lending to businesses that are investing in residential properties. Since these lenders deal exclusively with businesses that invest in real estate, it may make your application process easier and improve your chances of approval.
This is exclusively for businesses, not individuals, and you can’t get more than four loans, which is a limiting factor for some businesses. CoreVest is a well-known lender in this space that offers both fix-and-flip bridge loans as well as conventional 30-year mortgages for rental properties and property portfolios.
Who Investor-Only Lenders Are Right For
An investor-only lender may be right for you if you are a prime borrower with a significant down payment (25 percent or more). These providers might also be right for you if meet one of the following criteria:
- You’re investing in rental properties through a legal entity (like an LLC)
- You plan to invest in more than just rentals (like fix and flips or multifamily properties)
- Your portfolio has grown beyond four mortgaged properties
Where to Find Investor-Only Lenders
Investor-only lenders like CoreVest have loans set up specifically for businesses investing in real estate. They offer competitive rates and you can get pre-approved in a matter of minutes. However, in order to qualify for their investor-only loans, you must operate via a legal business entity.
3. Online Loan Marketplace & Banks for Investment Property Loans
Traditional mortgage providers include national and regional banks and credit unions, and are usually well-known brands. They typically offer many other services in addition to investment property loans, and they have many brick-and-mortar locations. Examples of these lenders include Bank of America, US Bank, Chase, and Wells Fargo.
Who Traditional Mortgage Providers Are Right For
Traditional mortgage providers are typically right for prime borrowers who have funds available for the necessary down payment of 20 percent or more. The accessibility, affordability, and reputation of national banks are generally what attracts borrowers to this option.
Traditional mortgage providers may be right for you if:
- You’re borrowing as an individual and not as a business entity
- You want a lender who’s familiar with the local real estate market
- You want a lender who understands the current rental market in your area
- You want a lender who’s familiar with you personally
Where to Find a Traditional Mortgage Provider
You can find a traditional mortgage provider at a credit union or a bank. It’s always best to start with an existing banking relationship. Wells Fargo, for example, is a traditional mortgage provider with nationwide locations as well as a website. You can stop in one of their branches or contact them online.
You can also find a traditional mortgage provider on an online loan marketplace such as Lending Tree. Here, you can compare different types of loans, their rates, and the lenders that offer them, all in one place.
Investment Property Loan Rates & Costs
When you’re borrowing in your personal name, conforming mortgage rates and costs will be pretty similar from lender to lender. Where things will start to vary is when you’re borrowing as a business entity. In those situations, you can expect higher rates and costs because the risk is greater for the lender.
Investment property loan rates and costs are generally:
- Interest rates: 4.5 to 6.5 percent fixed (6.5 percent to 12 percent if borrowing as a business)
- Loan points, origination fees, & closing costs: Typically 1 percent to 2 percent of your loan amount
There is also a prepayment penalty for the first five years of your loan term. Most investment property lenders will charge you a 5 percent fee if you pay off the loan in the first year, and then a 4 percent fee in year two. The fee decreases by one percentage point each year after that. After five years, there would be no prepayment penalty.
Investment Property Loan Qualification Requirements
Many conforming mortgage providers have to abide by Fannie Mae rules and regulations. Fannie Mae requires strict standardization, which is why there isn’t too much variation between conforming mortgage providers’ rates and requirements.
Investment property loan requirements are generally:
- Credit Score: 620 to 680+ (Check your credit score for free here)
- Down Payment: 20 percent to 25 percent
- Debt to Income Ratio (DTI): 35 percent to 50 percent
- Debt Service Coverage Ratio (DSCR): 1.2+
- Cash Reserves: Six+ months per property
Investment Property Loan Application Process
The application process for obtaining an investment property loan is very similar, regardless of the type of lender. You can typically work with a loan officer to get pre-approved within 20 or 30 minutes. This pre-approval is good for anywhere between 30 and 90 days, depending on your lender.
However, if you don’t purchase a property in that time frame, then your lender may have to re-check your credit and approve you again. Once you’ve found an investment property you want to buy and you’re ready to move forward, you can submit all required documentation to get final approval.
Below are the three steps you’ll generally take during the loan application process:
1. Investment Property Loan Pre-Approval
The pre-approval process is where you gather all of your financial and employment documentation and submit it to your lender, so the lender can verify your documents and run your credit. You will find out the amount that you qualify for, meaning how much the lender is comfortable lending you on a property.
Here’s a list of documentation you can expect to provide to your lender:
- Two Years of Personal Tax Returns
- Proof of Rental Income (rent rolls)
- Copies of Leases
- Contract to Purchase Property
- Property Appraisal (can be completed after you’re pre-approved for the loan)
2. Investment Property Loan Underwriting & Approval
The next process is where you should start shopping for an investment property based on your lender’s pre-approval amount. Once you find a property and make an offer on it, the lender will start underwriting the deal.
All of your financial information is double-checked during this period and the property is evaluated to make sure it matches the loan’s eligibility requirements. For example, a five-unit building won’t be approved since it’s considered a commercial property.
3. Investment Property Loan Closing
Once approved, you will move into the closing process. During closing, you typically have to wait on a property appraisal and submit any additional documentation that your loan provider requires. Regardless of your lender, your loan should close in about 30 days.
Investment Property Loans vs. Primary Residence Loans
Investment property lenders generally consider investment property loans riskier than loans for a primary residence because you aren’t living in the property and rental income is generally needed to pay the mortgage. Borrowers often need to have higher down payments and higher credit scores in order to qualify for rental property loans.
Other differences between rental property loans and primary residence loans include:
- Down Payment Amount: Rental property loans typically require a 20 percent or more down payment, and a loan for a primary residence may have a down payment as low as 3.5 percent
- Type of Lender: An investment property loan can be found through an online lender, business lender or at a bank; however, a primary residence loan will usually be found at a bank or credit union
- Interest Rate: The interest rate on investment property loans is typically .5 percent or higher than a primary residence loan
- Owner Occupancy Requirements: An investment property loan won’t have owner occupancy requirements, but a loan for your primary residence usually requires that you live in the property (or one of the units) for at least the first year.
“The main differences between residential investment property loans and getting a mortgage for a primary residence are the down payment and your credit score. You’ll pay a little more for the added risk investment properties represent to the lender, so your down payment generally needs to be at least 25 percent, as compared to only 3.5 percent down for a primary residence. Your credit score will have to be higher than it would be for the same loan on your personal residence.”
– Casey Fleming, Mortgage Advisor and author of The Loan Guide
Investment Property Loans Frequently Asked Questions (FAQs)
We are going to answer some of the commonly asked questions about real estate investment loans. However, if you have additional questions that we didn’t answer or would like to comment about real estate investment loans, please visit our forum.
What Is Considered an Investment Property?
An investment property is a piece of real estate that was purchased with the intent of using it to create revenue, either from rental income or from reselling it for a profit.
“An investment property is any non-owner occupied property used for income purposes. You cannot use the home for personal purposes, and the intention of the property is to generate income as a lump sum upon its sale or on an ongoing basis as rental income.”
– Robert Mulcahy, VP Specialty Lending, Angel Oak Prime Bridge
What Is the Minimum Down Payment for a Rental Property Loan?
An investment property mortgage usually requires a down payment of 20 percent or more. This is different from a mortgage for an owner occupant, which typically requires a down payment of 3.5 percent to 10 percent. This amount will vary based on the lender, type of loan, and the borrower’s overall financial standing. If you have a high FICO score, experience owning rental properties and consistent income, you will generally qualify for a lower down payment than a borrower with none of those things.
Can I Get a HARP Loan for My Investment Property?
A HARP loan is an abbreviation for The Home Affordable Refinance Program. It was created by the Federal Housing Finance Agency to let borrowers with an 80 percent+ loan to value (LTV) refinance their properties without paying private mortgage insurance. HARP qualifications include having a Fannie Mae or Freddie Mac loan originated on or before May 31, 2009.
Do You Need Property Insurance to Obtain Rental Property Financing?
Generally, an investment property lender will require rental property insurance prior to approving rental property financing on the property. The lender wants to make sure their investment and your investment are protected. Rental property insurance is different than homeowners insurance and it usually includes coverage for loss of income, liability and peril damage.
For more information on rental property insurance, including costs and providers, check out our in-depth guide on rental property insurance.
Although you have a number of options for a mortgage for your rental property, generally your best option is going to be a conforming mortgage. These loans typically give you the lowest interest rates and longest terms, which can maximize your monthly rental property cash flow. Most conforming mortgages for rental property will have similar rates and requirements if you’re borrowing as an individual.
If you plan on investing in multiple areas or would like the flexibility of doing everything online, then Visio Lending is a good choice. They pre-qualify you in minutes and they offer competitive rates on their investment property loans with terms up to 30 years.