Where to Get Investment Property Loans for Rental Property

If you’re shopping for an investment property loan, you can find one through online mortgage providers, investor-only lenders, and national banks. Loan amounts typically range from $45,000 to more than $2 million, but any lender will probably require you make a 20% minimum down payment.

If you’d like to go the online route, LendingHome is great for both new and experienced investors. Both short- and long-term loans with flexible repayment terms are available, depending on your needs. Fill out a short application on its website and you can see rates in as little as three minutes.

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Where to Get Investment Property Loans

The different types of lenders are better for some types of investors over others largely based on their requirements. If you need money fast, for example, you might want to look to an online mortgage lender before a bank because time-to-funding may be quicker. Keep in mind that the three types of lenders may also have different requirements for maximum loan-to-value, minimum credit score, and total cash reserves.

Comparing Investment Property Loans

Online Mortgage Providers for Investment Property Loans

Getting an investment property loan online is convenient since you don’t have to go to a physical bank. Some of these lenders waive 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 compared to a traditional mortgage provider.

Who Online Mortgage Providers Are Right For

Online mortgage providers are right for prime borrowers who can make a minimum 20% down payment. These lenders are flexible on DTI and income requirements, making them good for investors who don’t qualify with a traditional lender or 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 streamlined application
• You’re borrowing as an individual and not as a business entity
• You want a mortgage provider that can fund properties in almost any location
• You don’t want to go to a bank during normal business hours

Where to Find Online Mortgage Providers

You can find online mortgage providers who offer investment property loans by doing a quick online search. One of our preferred online mortgage providers is LendingHome, which offers rental property loans with flexible terms and competitive rates for borrowers. Breeze through pre-approval in just three minutes to see your options.

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Lenders for Business Entities

Some lenders only provide investment property financing to borrowers who have formed business entities, like a limited liability company (LLC) or a corporation. They don’t finance individual investors or sole proprietors. The credit score requirements are generally lower than other types of lenders require. The lender may consider the structure of the deal more heavily than the personal financial statement.

Who Business Entity Lenders Are Right For

Business entity lenders are best for investors who are building a mixed portfolio of rentals, fix-and-flips, and multifamily properties and for existing portfolios consisting of more than four properties with mortgages on them.

Where to Find Business Entity Lenders

Business entity lenders like CoreVest offer loans specifically for businesses investing in real estate. CoreVest offers competitive rates, and you can get pre-approved online in minutes. However, to qualify for its investor-only loans, you must obtain financing through a legal business entity.

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Online Loan Marketplace for Banks

Online lenders include national banks, regional banks, and credit unions and offer many other banking services in addition to investment property loans. They may have many brick-and-mortar locations. Using an online loan marketplace can help you locate online bank investment property lenders conveniently.

Who Banks Are Right For

• Individuals and sole proprietors
• Buying properties locally
• Low interest rates and 15- or 30-year terms

Where to Find Investment Property Loans through a Bank

You can find a traditional mortgage provider at a credit union or a local bank. It’s always best to start with an existing banking relationship since they already know you. You also can find a traditional mortgage provider on an online loan marketplace like LendingTree. Here, you can compare different types of loans, their rates, and the lenders that offer them, all in one place.

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Investment Property Loan Rates & Costs

When you’re borrowing as an individual, conforming mortgage rates and costs will be somewhat similar from lender to lender. When you’re borrowing as a business entity, you can expect higher rates and costs because the risk is greater for the lender.

• Interest rates: 4.5% to 6.5% fixed (6.5% to 12% if borrowing as a business)
• Loan points, origination fees, and closing costs: Sometimes 1% to 2% of your loan amount

Some investment property lenders will charge a 3% to 5% prepayment penalty if you pay off the loan in the first year, and then a 2% fee in year two. The fee decreases by 1 percentage point each year after that. After three to five years, there would be no prepayment penalty for paying off the loan early.

Investment Property Loan Qualification Requirements

• Minimum credit score: 620 to 680
• Down payment: 20% to 25%
• DTI: 35% to 50%
• Debt service coverage ratio (DSCR): 1.2 or greater
• Cash reserves: A minimum of six months per property

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 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 minimum of 20% down. A loan for a primary residence may have a down payment as little as 3.5%.
• Interest rate: The interest rate on rental property loans is typically higher than a primary residence.
• 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.

6 Tips for Getting Investment Property Loans

Getting an investment property loan is not the same as buying a primary residence, and can, therefore, be tricky. To secure rental property financing, both the buyer and the property have to be approved by the lender, and there are additional steps to consider. By following these tips, your odds of success will increase.

1. Review Your Credit Profile

Check your credit report for discrepancies and outdated information, and work to have those items removed, when possible. You can get a free copy of your credit report once a year from the three major credit bureaus, Experian, TransUnion, and Equifax, at AnnualCreditrReport.com or sites like Credit Karma.

2. Decide on the Type of Property

If you’re buying your first rental property, you may want to consider buying a single-family residential or small multifamily since there is less to manage. If you have managed rental property before, consider how this purchase aligns with your portfolio and long-term goals when determining which type of property to buy.

3. Talk to Multiple Lenders

Shop around for financing that meets your needs. Compare financing. Look at both online lenders and traditional brick-and-mortar banks. Talk to at least three, but no more than five. With too many choices, it might be harder to decide.

4. Get Your Paperwork in Order

Gather two years of tax returns, your last two pay stubs, bank, investment and retirement account statements, your driver’s license, Social Security card, and if self-employed, include any business financial statements and documents. Doing so will save you a lot of time scrambling to find documents your lender will need that could delay closing potentially.

5. Get a Lender Pre-approval

Having a pre-approval makes you more competitive when you submit an offer on a rental property. Also, a pre-approval puts you further ahead in the necessary steps from underwriting through bank commitment. It also can give you peace of mind that your odds of getting your investment rental funded are increased.

6. Find a Property

Choose a real estate agent who has a proven record of working with investors. When you find a property, do your due diligence. When you have an accepted offer, bring your purchase and sales agreement to your lender. They will order an appraisal and ask for further documentation from you for underwriting. An appraisal and title search will be done.

Investment Property Loans Frequently Asked Questions (FAQs)

In this article, we have done our best to detail your options for finding where to get investment property loans for rental property. However, as with any type of financing, some questions are asked more frequently than others, and we have tried to address those here.

Can I get an investment property loan from my local bank?

Many local banks offer investment property loans. Some local banks only lend on residential properties up to four units. Others fund nearly every type of investment property. The pros and cons are the opportunity to build a strong relationship for future investment versus they may not be able to fund more than a few properties.

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. The lender wants to make sure both their investment and your investment are protected. Rental property insurance is different from homeowner’s insurance, and it usually includes coverage for loss of income, liability, and peril damage.

Bottom Line

Although you have several 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.