How Do You Get A Mortgage For A Rental Property?

Learn about investment loans for purchasing a rental property.
Apr 06, 2022

Purchasing your first rental property is a big step in your real estate investor journey. Aside from choosing a potentially profitable property, you need to figure out how to finance your rental.

Before sharing how to apply for an investment loan, et’s look at how a primary home mortgage differs from a rental property mortgage.

The Difference Between a Mortgage for a Primary Home and a Rental

On the surface, a mortgage for a rental may look similar to a mortgage for a primary home since the application process is the same. However, there are different rules and guidelines lenders follow when you apply for a mortgage on a rental property.

Larger Down Payments

For a primary home, you can make as little as a 3% down payment in some cases while for investment properties the minimum down payment required can range from 15% to 20%.

Higher Rates

Since lenders are taking on higher risk, your mortgage rate on your rental property will likely be a little higher. Usually, the rate will be between 0.375 to 0.5 of a percentage point higher for an investment property compared to a primary home loan.

Shorter Terms

In some instances, you may have to settle for a shorter term compared to the typical 30-year term offered for primary home mortgages.

HOW TO APPLY FOR A RENTAL PROPERTY MORTGAGE  

The application process for a rental property involves the same steps as a primary home loan. Lenders will qualify the buyer, appraise the property, research the title and underwrite the loan.

When financing a rental property lenders will require a minimum credit score of 620. If you want to get the best rates your scores should be in the high 740s or better. DTI ratio should be no higher than 35% to 45%.

The lender may ask for financial statements for the past 3 years as well as projections for the next 12 months, similar to the requirements for a commercial borrower. Additionally, you’ll also need to submit current personal financial statements and tax returns of principal owners.  

Ready to Invest in a Rental Property?

Being a landlord has its perks but it’s important that you have all the information necessary for success. Get in touch with our loan advisors for personalized guidance and to get pre-approved on your loan today.

Interest Rates Have Increased

Borrowers May Not Qualify

Due to DTI Calculation

Time To Consider

NO RATIO PROGRAM

No DTI calculation

No Income on Application

No Employment on Application

No Tax Returns

No W2s

No 1099

Only Required to Have

as low as 20% Down Payment

80% LTV = 720+ FICO - 12 Months Reserves

75% LTV = 680-719 FICO - 9 Months Reserves

65% LTV = 660-679 FICO - 9 Months Reserves

Funds for Down Payment

Closing Costs

Prepaid’s

Reserves

Primary Residence

Second Home

Purchase

Refinance

Minimum Loan $200,000