Investment property loans are usually found through online mortgage providers, investor-only lenders and national banks. Rates and terms vary based on the borrower, the property and the type of loan but mortgage rates are generally 3 – 12% and terms are usually 3 – 30 years. Loan amounts typically range from $45,000 to $2,000,000.
If you’re looking for a permanent mortgage, 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
|Conforming Mortgage Provider||Best For|
|Online Mortgage Lender||An individual who wants a streamlined application and approval process.|
|Lender for Business Investment||A business with a large down payment who wants to buy multiple investment properties.|
|Traditional Bank||An individual investor that already has a personal relationship with their bank.|
Conforming Mortgages for Investment Properties
When we talk about investment properties, we’re typically talking about residential properties with 4 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 4+ units) or for investors looking to buy and rent commercial real estate.
Most lenders will not lend to you once you have 4 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 10, but many lenders stop lending to you when you hit 4. If you own a large portfolio of rental properties with liens on them, then a blanket mortgage might be a better financing option.
Where to Get a Conforming Mortgage for Investment Properties
There are three types of 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|
Where to get conforming mortgages for investment properties:
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 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 online mortgage provider 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 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% 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’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 4 loans, which is a limiting factor for some businesses. LendingOne is a well known lender in this space that offers both fix-and-flip loans as well as conventional 30-year mortgages for rental properties.
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%+). 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 & flips or multifamily properties)
- Your portfolio has grown beyond 4 mortgaged properties
Where to Find Investor-Only Lenders
Investor-only lenders like LendingOne 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. Traditional Mortgage Providers for Investment Property Loans
Traditional mortgages 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% 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 better 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.
Investment Property 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:
- Interest rates: 3 – 6.5% fixed (6.5% – 12% if borrowing as a business)
- Loan points, origination fees, & closing costs: Typically 1% – 2% of your loan amount
There is also a prepayment penalty for the first 5 years of your loan term. Most lenders will charge you a 5% fee if you pay off the loan in the first year, and then a 4% fee in year 2. The fee decreases by 1 percentage point each year after that. After 5 years, there would be no more 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 – 680+ (Check your credit score for free here)
- Down Payment: 20% – 25%
- Debt to Income Ratio (DTI): 35% – 50%
- Debt Service Coverage Ratio (DSCR): 1.2+
- Cash Reserves: 6+ 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 – 90 days, depending on your lender.
However, if you don’t purchase a property in that timeframe, 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 3 steps you’ll generally take during the loan application process:
1. 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:
- 2 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)
The approval 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 5 unit building won’t be approved since it’s considered a commercial property.
Once approved, you will move into the closing process. During closing, you typically have to wait for 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.
Rental Property Loans vs. Primary Residence Loans
Lenders generally consider rental property loans riskier than loans for a primary residence since 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.
“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%, as compared to only 3.5% 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
Although you have a number of options for investment property loans, 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 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 prequalify you in minutes and they offer competitive rates on their investment property loans with terms up to 30 years.