Where to Get Investment Property Loans for Rental Property

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 million or higher. Rental property loans usually require a minimum down payment of 20%. 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.

Visit Visio Lending

Where to Get an Investment Property Loan

Types of Investment Property Loans

When we talk about investment properties, we usually mean 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 620 or higher 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 online mortgage lenders, lenders for investment businesses, and national banks. In the table below, we compare these conforming mortgage providers:

Conforming Mortgage Providers 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 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, 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% 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 rental property loans with 30-year terms and competitive rates for prime borrowers. Their pre-approval process can take minutes.

Visit Visio Lending

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% 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 a limited liability company (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, to qualify for their investor-only loans, you must operate via a legal business entity.

Visit CoreVest

3. Online Loan Marketplace & Banks for Investment Property Loans

Traditional mortgage providers include both national and regional banks and credit unions and are usually well-known. 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, U.S. 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 understands the current rental market in your area.
• You want a lender who’s familiar with you personally.

Where to Find Traditional Mortgage Providers

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.

Visit LendingTree

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. Where it begins 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% 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

There is also a prepayment penalty for the first five years of your loan term. Most investment property lenders will charge a 5% fee if you pay off the loan in the first year, and then a 4% 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 must 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 or higher (check your credit score for free here)
• Down payment: 20% to 25%
• Debt-to-income ratio (DTI): 35% to 50%
• Debt service coverage ratio (DSCR): 1.2 or greater
• 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 recheck 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 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)

To show proof of rental income, you will want to provide the rent rolls. Check out our Rent Roll and Expense worksheet to help prepare you for meeting with your lender.

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, the lender will start underwriting the deal.

All 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 will likely 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.

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 20% or more down payment, and a loan for a primary residence may have a down payment as low as 3.5%.
• 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 rental property loans is typically .5% 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 the 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 adviser and author of The Loan Guide

Tips for Getting Rental 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.

Here are six tips for getting an investment property loan for a rental property.

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 CreditKarma.

2. Decide on the Type of Property

If it is your first investment property, you may want to consider buying a single-family residential, since there is less to manage. Check out our article on Top Tips for Buying Your First Rental Property. If you have managed rental property before, consider how this next 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. We’ve shared some information in this article that can help you get started. It is wise to look at several loan products before deciding. Compare financing. Look at both online lenders and traditional brick-and-mortar banks. Talk to at least three, but no more than five, because otherwise it could slow down your progress. 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 potentially delay closing.

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, though not yet guaranteed.

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. If we have not answered your question, feel free to share it with us on the Fit Small Business forum.

What is considered an investment property?

Investment properties are real estate purchased with the intention of generating revenue, either from rental income or from a profitable sale. Types of investment property include fix-and-flip homes that investors buy, renovate, and sell, or buy-and-hold properties that are purchased and held for steady rental income and increased equity.

“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

2. 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.

“If you have saved enough for a down payment (a minimum of 20% of the price of the investment property) and decided that a conventional mortgage loan is the best option in your case, remember to check out small, local banks. Many times, they offer better conditions than large, national banks, as they are trying to attract more customers as well as investors to their area. Shop around to make sure you get the best terms possible.”

– Daniela Andreevska, Marketing Director, Mashvisor

3. What is the minimum down payment for a rental property loan?

An investment property loan usually requires 20% or more down. An owner-occupant loan requires 3.5% to 10% down. This varies by 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.

4. Can I get a HARP loan for my investment property?

A HARP loan (The Home Affordable Refinance Program) was created by the Federal Housing Finance Agency to let borrowers with an 80% 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.

5. 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.

For more information on rental property insurance, including costs and providers, check out our in-depth guide on rental property insurance.

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.

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.

Visit Visio Lending