Investment Property Loans

What is an Investment Property Loan?

Real estate investment loans typically come with more stringent requirements than traditional mortgages, as the lender is taking on a higher level of risk. This means that investors may need to have a higher credit score, a larger down payment, and a lower debt-to-income ratio to qualify for these types of loans. However, there are some options that are flexible, such as non-QM loans or DSCR loans, which are based on the property’s income potential.

Overall, real estate investment loans can be a powerful tool for investors, especially when entering larger and more complex deals. However, investors should carefully consider the potential risks and benefits of these loans before deciding whether to pursue them. Working with a knowledgeable lender and real estate professional can help investors make an informed decision about which loan is right for them.

Which Loan is Right For Your Investment?

There are a lot of different loan types out there so make sure you are armed with the information you need to make the best decision for you and your investment. BiggerPockets has broken down the different loan types for you, if you still have questions be sure to post them into our forums to get advice from other investors.

What are the Requirements For Investment Property Loans?

Conventional loans

The requirements for investment property loans can vary depending on the type of loan and the lender's policies. Generally, lenders will evaluate a borrower's credit score, debt-to-income ratio, and down payment amount.

A conventional mortgage or conventional loan is any type of homebuyer's loan that is not offered or secured by a government entity, like the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) or the USDA Rural Housing Service, but rather available through or guaranteed a private lender (banks, credit unions, mortgage companies) or the two government-sponsored enterprises, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

FHA loans

An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans can be used for low-to-moderate-income borrowers who are unable or do not want to make a large down payment. These loans allow the borrower to borrow up to 96.5% of the value of the home (with a credit score of at least 580; otherwise, a 10% down payment is required). The 3.5% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time homebuyers.

VA loans

VA loans are designed to help military veterans and active-duty service members buy or refinance a home. To qualify, the borrower must have a Certificate of Eligibility from the VA, meet credit and income requirements, and pay a one-time funding fee. The property being purchased or refinanced must also meet certain VA requirements.

Hard money loans

A hard money loan is a short-term and high-interest loan. Unlike traditional loans, an HML is backed by the value of the real estate and not by the creditworthiness of the borrower. They are funded by private investors or companies as opposed to conventional lenders such as banks or credit unions.

Commercial loans

A commercial loan is a loan for a commercial property. Alternatively, investors may take out a commercial loan on a residential property that already has several other loans. Typically, commercial lenders prioritize the property value over the borrower’s ability to pay back the loan.

Personal loans

Finally, personal loans can be a simple way to secure cash. Typically money is borrowed from a bank, credit union, online lender, or personal lender. The loan is paid back on a short timeline with monthly installments, including interest, or structured based on negotiations in the case of a personal lender.

How to Get an Investment Property Loan?

To get an investment property loan, borrowers typically need to follow several steps. First, they should evaluate their investment goals and determine how much they can afford to borrow. Next, they should research different types of loans and lenders to find the best fit for their needs.

Once they have identified a lender and loan program, they will need to submit an application and provide documentation such as income verification and property details. The lender will then evaluate the application and make a decision on whether to approve the loan. If approved, the borrower will typically need to complete additional paperwork and provide a down payment before closing on the loan.

Is it Easy to Get a Loan For an Investment Property?

Getting a loan for an investment property can be more challenging than getting a loan for a primary residence. Lenders typically have more stringent requirements for investment property loans, as they are taking on a higher level of risk.

Borrowers will typically need to have a good credit score, a low debt-to-income ratio, and a sizable down payment to qualify for most investment property loans. However, there are many lenders and loan programs available for investors, so with some research and preparation, it is possible to obtain a loan for an investment property.

How Can I Get the Best Loan Rates?

To get the best loan rates for an investment property, borrowers should shop around and compare rates and fees from multiple lenders. They should also work to improve their credit score and debt-to-income ratio, as these factors can impact the interest rate they are offered.

Borrowers may also be able to negotiate with lenders to get better rates, especially if they have a strong credit history and substantial down payment.

Can I Get an Investment Property Loan as an LLC?

Yes, it is possible to get an investment property loan as an LLC (limited liability company). In fact, many investors choose to purchase properties through an LLC to protect their personal assets from liability.

However, lenders may have additional requirements for LLCs, such as providing financial statements and proof of business registration. The interest rates and terms for an LLC loan may also differ from those for an individual borrower.

Can I Put Less Than 20% Down On an Investment Property?

While a 20% down payment is often recommended for investment property loans, it is possible to put down less than 20%. Some lenders may offer loans with a lower down payment requirement, but these loans may come with higher interest rates or mortgage insurance premiums. Borrowers should carefully evaluate their options and consider the long-term costs of a lower down payment before making a decision.

Loan Resources

Access more resources to better understand your options for investment loans.

• The ultimate beginner's guide to home loans

  Taking out a mortgage may be nerve-racking for a first-time buyer—and for good reason. Home loans represent a big commitment. But mortgages are also the simplest, most realistic way for the vast majority of people to buy a home. And if you choose correctly, your loan can be an affordable path to owning a home or investment property. Explore your lending options—including 15 vs. 30-year fixed-rate loans, adjustable-rate loans, and government-backed loans—to make your best, most informed decision here. Read guide

• The guide for choosing the right loan

  Are you someone who wants to buy investment property, but you just can’t figure out how to finance your first buy? If so, this article is written for you. Learn about seven different ways to finance your first property. Before that, I’ll also share ideas to make sure this first purchase fits into your overall wealth building strategy so that you don’t waste time going down the wrong paths. Read guide

• Additional Loan Resources

  • Conventional
  • Pros and Cons of a conventional loan
  • Conventional ARM loan
  • VA loans
  • How to use a personal loan
  • Finding investor-friendly lenders
  • A guide to jumbo loans
  • How to get approved for a conventional loan