Investment property loans: Options and requirements

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

Real estate can generate rental income and support a broader investment plan, but the financing has to fit the property and the way you’ll use it. Investment property loans can help you buy or refinance real estate that you won’t occupy.

Compared with owner-occupied financing, financing investment properties often requires more cash up front, stronger reserves, and additional documentation. Rocket Mortgage finances qualifying rental properties, but it doesn’t finance properties intended to be rehabbed or torn down.

Key takeaways:

• Investment property loans usually have different down payment, reserve, credit, and documentation requirements than loans for a primary residence.
• The right financing path depends on whether you plan to buy a long-term rental, live in one unit of a multiunit home, renovate and resell, or purchase commercial real estate.
• Compare the full borrowing cost, projected property cash flow, and your financial cushion before choosing a loan and applying.

What is an investment property loan?

An investment property loan is financing for real estate you plan to use primarily to earn income or pursue another investment return, rather than as your main home. Depending on the property and your strategy, that can mean a residential mortgage, a loan based largely on rental income, financing secured by another property, or a commercial loan.

Residential investment property loans generally cover homes with one to four units. Properties with five or more residential units, as well as office, retail, industrial, and hospitality properties, typically use commercial financing. Long-term rentals, short-term rentals, and homes bought for resale don’t always qualify for the same products, so start by matching the loan to your type of real estate investment.

Investment property vs. second home vs. primary residence

Occupancy and intended use determine whether a lender classifies a property as a primary residence, second home, or investment property. That classification can affect available loan programs, down payment requirements, reserves, documentation, and mortgage rates.

Primary residence

A primary residence is the home you occupy as your main residence. You can still earn rental income with a qualifying multifamily home as your primary residence by living in one unit and renting the others. This approach may provide access to owner-occupied financing, but you must follow the loan’s occupancy requirements.

It’s worth briefly noting here that based on standard regulations, anything with up to four units is a single-family home. We’re choosing to use the definition that most of the public would in defining a multifamily home the way we are.

Second home

A second home is a property you occupy personally for part of the year. It isn’t automatically an investment property simply because you rent it occasionally. Under Rocket Mortgage guidelines, a second home can be rented as long as you use it personally for the greater of 14 days or 10% of the days it would otherwise be available for rental. The property still has to meet all applicable second-home and lender requirements.

Investment property

An investment property is generally a home you don’t occupy and own primarily to collect rent, benefit from a potential increase in value, or pursue another investment objective. Because the property isn’t your residence, lenders evaluate the transaction differently and may require more money down, more reserves, or different documentation.

Investment property loan requirements

Investment property loan requirements vary by loan type, property, unit count, loan purpose, underwriting method, and lender policies. Most lenders review five core areas: your credit, down payment or equity, debt-to-income ratio, cash reserves, and income documentation.

Credit score

For loans evaluated through their automated underwriting systems, Fannie Mae and Freddie Mac don’t require one specific minimum credit score for every investment property transaction. Lenders can set their own minimums, and your overall credit profile still affects eligibility and available terms.

At Rocket Mortgage, a 15% down payment generally requires a credit score of at least 620. You need a score of at least 580 to take cash out. Jumbo Smart loans require a score of at least 680, although the minimum may be higher depending on the down payment or equity, loan amount, and other qualification factors.¹

Down payment

You’ll need a down payment of at least 15% to purchase a qualifying one-unit investment property. Requirements are higher at Rocket Mortgage when you want to qualify with a credit score below 620, and a property with more units may require more money down. A larger down payment lowers the loan-to-value ratio, or the percentage of the property value being financed.

For an investment property refinance, you generally need at least 25% equity for a one-unit property or 30% equity for a two- to four-unit property. The exact requirement depends on the transaction and lender policies.

Debt-to-income ratio

Your debt-to-income ratio (DTI) compares your required monthly debt payments with your gross monthly income. A lower DTI leaves more room in your budget for the new mortgage payment. To qualify for the widest range of programs, Rocket Mortgage recommends a DTI of 45% or lower, although the maximum can vary based on the program.

Cash reserves

Cash reserves are eligible funds left after closing that could cover your qualifying housing payments if your income drops or the property sits vacant. The amount varies by loan type, but 6 months or more of reserves may be required for an investment property. You may need additional reserves when financing multiple rental properties.

Income and documentation

Your lender will verify that you can cover the down payment, closing costs, reserves, and monthly obligations. The exact list varies, but these documents are a useful starting point:

• 2 years of personal and, when applicable, business tax returns
• 2 years of W-2s or 1099s
• 2 months of bank and investment account statements
• Your 2 most recent pay stubs, when applicable
• Current leases, rent schedules, or other documentation of eligible rental income
• Records for other financed properties and any applicable business or LLC documents

Your lender may ask for more or different documentation based on your employment, ownership structure, property, and loan type.

Investment property loan rates

Investment property mortgage rates are generally higher than rates for an otherwise similar primary residence. Your credit, down payment or equity, number of units, loan type, points, and market conditions all shape the offer. Review current mortgage rates for investment properties before comparing lenders.

Why investment property rates are higher

A non-owner-occupied mortgage presents more foreclosure risk to a lender. If a client has a serious financial setback, they’re likely to make the payment on the home they live in before paying the mortgage on a rental property. Lenders account for that added risk when they set rates and other loan terms.

How to get a better investment property mortgage rate

You may improve your available terms by strengthening the full application. Review your credit reports, reduce high monthly debts, increase the down payment, and keep enough reserves after closing. A strong rental history and complete documentation can also make underwriting more straightforward.

You can also compare fixed- and adjustable-rate options and ask how points affect the offer. Paying points may reduce the note rate, but it increases your upfront cost. Compare that trade-off with how long you expect to keep the loan.

How to compare rate quotes

Compare quotes using the same loan amount, term, rate structure, property type, occupancy, and rate-lock period. Review the interest rate, APR, points, origination charges, lender credits, cash to close, and projected payments on each Loan Estimate. A low advertised rate may come with higher upfront costs, so compare the full package instead of one number.

If the base rate is the same, one of the key things to look at is APR. If the annual percentage rate is higher for one loan over the other, it means that loan has more points or other closing costs associated with getting the same rate.

Types of investment property loans

The best investment property loan depends on what you’re buying, how you plan to use it, and how you want to qualify. Start with your goal, then compare the collateral, qualification method, repayment structure, and lender availability.

Conventional loans

A conventional loan can finance a qualifying one- to four-unit investment property. Underwriting considers your credit, income, assets, debts, down payment, reserves, the property, and eligible rental income. A one-unit purchase may start at 15% down, while multiunit properties generally require more. Lender policies can add requirements beyond the baseline guidelines.

Government-backed loans

FHA and VA purchase loans are designed for qualifying primary residences, not the direct purchase of an investment property you won’t occupy.^2,3 You may be able to buy a qualifying multiunit home, occupy one unit as your primary residence, and rent the remaining units. Read more about using an FHA loan for an investment property or a VA loan for a rental before choosing this path.

Home equity loans

A home equity loan is a separate, closed-end loan secured by the equity in a home you already own. You receive the proceeds as a lump sum and repay the loan in monthly installments, typically at a fixed interest rate.

You can use a home equity loan to purchase an investment property, but your current home secures the debt. Rocket Mortgage offers Home Equity Loans for qualifying clients.⁴

Home equity line of credit (HELOCs)

A home equity line of credit (HELOC) is a revolving line secured by home equity. You can draw funds during the draw period, repay them, and borrow again up to the limit. HELOCs commonly have variable rates, and the home securing the line is at risk if payments aren’t made. Rocket Mortgage doesn’t offer HELOCs, but you can learn how a HELOC on an investment property generally works.

Cash-out refinance

A cash-out refinance replaces your current first mortgage with a larger mortgage and gives you the difference in cash, subject to available equity and qualification. It keeps the debt in one mortgage payment, but it also replaces the rate and terms on your entire existing balance and comes with new closing costs. Compare those trade-offs before you refinance an investment property.

DSCR loans

A debt service coverage ratio (DSCR) loan focuses on whether the rental income earned can cover required debt payments. The lender divides eligible property income by applicable debt service under its own calculation. Requirements, documentation, recourse, qualifying ratios, and entity-ownership rules vary by lender.

Hard money loans

A hard money loan is specialty financing where you qualify almost entirely based on collateral and the plan for repaying the debt. These loans are often short-term and may carry higher costs than traditional mortgages. Have a plan for paying it off. Rocket Mortgage doesn’t offer hard money loans.

Private loans

Private financing can come from an individual real estate investor, seller, business partner, friend, or family member rather than a traditional mortgage lender. The parties negotiate the amount, interest, repayment schedule, collateral, and remedies. Put the agreement in writing and have qualified legal and tax professionals review it. Rocket Mortgage doesn’t offer private loans.

Portfolio loans

A portfolio loan is kept by the lender instead of being sold under standard investor guidelines. Because the lender retains the loan, it can use its own underwriting standards and may finance transactions that don’t fit a common loan program. Terms and availability are lender-specific. This is different from a blanket mortgage, which can use multiple properties as collateral for one loan.

Bridge loans

A bridge loan is temporary financing meant to cover a gap before longer-term financing, a property sale, or another expected source of funds. It can help with timing, but you may carry multiple payments and face a short payoff deadline. Review the collateral, total carrying cost, repayment source, and backup plan before using one.

Commercial loans

Commercial loans finance properties such as apartment buildings with five or more units, offices, retail centers, industrial buildings, and hospitality properties. Underwriting may focus on property cash flow, leases, business finances, sponsor experience, collateral, and the business plan. Rocket Mortgage doesn’t offer loans for commercial real estate.

SBA loans

Small Business Administration loan programs can support qualifying operating businesses, including certain purchases or improvements of business real estate. They aren’t a general path for passive residential rental investing, and SBA 504 loans can’t be used for speculation or investment in rental real estate. Rocket Mortgage doesn’t offer SBA loans.

Fix-and-flip loans

Fix-and-flip financing is designed for a short-term plan to buy, renovate, and resell a property. Lenders may evaluate the acquisition price, renovation budget, draw schedule, project timeline, carrying costs, expected resale value, and exit strategy.

Rocket Mortgage doesn’t offer loans for flipping houses and doesn’t finance properties intended to be rehabbed or torn down.

Construction loans

Construction loans can fund a new build or major construction and usually release money in stages as work is completed. The lender may review plans, permits, budget, builder qualifications, inspections, and the path to permanent financing or repayment. Rocket Mortgage doesn’t offer construction loans.

How to apply for an investment property loan

The application process moves from preparation to underwriting, appraisal, disclosures, and closing. Exact requirements and timing vary, but organizing your property plan and documents early can reduce avoidable follow-up requests.

Check investment property loan requirements

Confirm how the property will be occupied, unit count, condition, intended use, and eligibility for the proposed loan. Review the expected credit, down payment or equity, DTI, reserve, income, and rental-income requirements before making an offer. Find out whether the lender will close based on how you plan to take title.

Collect the necessary paperwork

Gather identification, income records, tax forms, bank and investment statements, debt information, and documentation for the down payment and reserves. Depending on the transaction, you may also need leases, rent schedules, insurance information, records for other properties, and business or entity documents. Respond promptly to update requests.

Secure mortgage preapproval

A mortgage preapproval gives you an estimate of the amount a lender may be willing to lend based on the information reviewed. It can help you shop within a realistic range and show a seller that you’ve started the financing process. It isn’t a final approval because the property and your financial profile still have to satisfy underwriting.

Preapproval vs. prequalification

Lenders don’t always use prequalification and preapproval in the same way. Ask what information was reviewed, whether income and assets were documented, whether credit was checked, and which conditions remain. That tells you more than the label alone.

Rocket Mortgage considers an estimate based on stated income and assets to be a prequalification, and credit may or may not be checked. For a preapproval, which Rocket Mortgage calls a Verified Approval, income and assets are documented, and credit is pulled.⁵

Get an appraisal

An appraisal gives the lender an independent opinion of the property’s value and helps evaluate the collateral. It isn’t the same as a home inspection: The appraisal focuses on value and applicable property standards, while an inspection helps you understand the home’s condition. Review the appraisal when it’s provided and ask questions about material differences from the purchase price.

A full appraisal wasn’t always required, but lenders will need some sort of verified home value.

Review the Closing Disclosure

The Closing Disclosure shows the final loan terms, projected payments, fees, and closing costs for a covered mortgage. You generally receive it at least 3 business days before closing. Compare it with the most recent Loan Estimate, confirm the cash needed to close, and ask about any changes you don’t understand before signing.

Close on the loan

At closing, you review and sign the final documents, provide required funds, and complete outstanding title, insurance, and lender conditions. The exact signing, funding, and recording process can vary by state and transaction. Keep copies of the loan, appraisal, insurance, lease, title, and closing documents for your records.

Types of investment properties

Property type affects lender selection, valuation, income analysis, insurance, management, and your exit plan. Most investments fall into residential real estate, commercial real estate, or raw land.

Residential real estate

Residential investment properties include single-family rental homes, condos, townhouses, and two- to four-unit properties. Depending on the program, underwriting may consider your finances and eligible rental income.

A short-term rental may face additional lender, insurance, homeowners association, and local-use requirements. Review the full process for buying a rental house before making an offer.

Commercial real estate

Commercial real estate includes residential buildings with five or more units and nonresidential properties such as offices, retail spaces, industrial buildings, and hotels. Commercial lenders focus on leases, net operating income, business strength, borrower experience, and commercial valuation. Rocket Mortgage doesn’t offer commercial loans.

Raw land

Raw land has no completed income-producing structure, so it may require a land loan, development loan, or construction loan instead of a residential investment property mortgage. Investigate zoning, access, utilities, environmental issues, development costs, taxes, and the holding period. Rocket Mortgage doesn’t offer loans for raw land.

Tools to estimate investment property loan costs

Calculators can help you test assumptions, but the result is only as useful as the inputs. A principal-and-interest estimate doesn’t capture every cost of owning a rental, and a calculator result isn’t a loan offer, rate quote, or approval decision.

Mortgage calculator

Use a mortgage calculator to estimate principal and interest based on a loan amount, term, and assumed rate. Then account separately for property taxes, homeowners insurance, mortgage insurance, homeowners association dues, maintenance, utilities, management, and periods without rent unless the calculator includes those costs.

Amortization calculator

An amortization calculator shows how principal and interest are allocated over the repayment term and how the balance may change over time. It can help you compare terms or understand the effect of extra principal payments. Don’t treat an educational calculation as current pricing or a personalized loan option.

APR

APR reflects the interest rate plus origination costs as an annual percentage. It can make it easier to compare reasonably similar loan structures, but it doesn’t replace a review of the interest rate, points, lender credits, origination charges, prepayment terms, cash to close, and total expected cost. Use the Loan Estimate to compare standardized disclosures.

Signs you’re ready to buy an investment property

Readiness is more than qualifying for a mortgage. Consider your cash cushion, projected return, management plan, due diligence, and expected ownership timeline together before moving forward.

You’re financially stable enough to cover the costs

Plan for the down payment, closing costs, reserves, repairs, maintenance, insurance, taxes, and periods without rental income. Leave room for unexpected costs instead of using every available dollar to close. Your lender’s reserve requirement is a starting point for qualification, not a complete property budget.

The return on investment is there

Compare projected rent with the mortgage payment, property taxes, insurance, maintenance, utilities, management fees, homeowners association fees, and a realistic vacancy assumption. Gross rent, cash flow, return on investment (ROI), and appreciation measure different things. Build the decision on documented costs and conservative assumptions rather than a promised return.

You have time to manage it

Rental ownership can involve advertising, screening tenants, collecting rent, coordinating maintenance, keeping records, following local rules, and responding to emergencies. A property manager can take on some of that work, but the fee becomes part of your operating cost. Decide who will handle each responsibility before the first tenant moves in.

You have vetted the property

Review the location, condition, comparable rents, vacancy patterns, property taxes, insurance availability, homeowners association or condo restrictions, zoning, and short-term-rental rules. A thorough search for a suitable investment property should test the assumptions behind your budget, not just the listing description.

You want to pay close attention to the home inspection in particular. Having to do a bunch of maintenance work before you can get a renter in could cut heavily into your profit margin.

You know how long you plan to own it

Your expected holding period can affect the choice between a fixed-rate and an ARM for an investment property, as well as whether paying points makes sense. It also shapes your renovation plan, management strategy, and exit costs. Stress-test the plan for what happens if you have to keep the property longer than expected.

FAQ

Investment property financing brings together occupancy rules, lender requirements, and business planning. These answers address a few common questions before you compare options or start an application.

Is it hard to get a loan for an investment property?

Qualifying may take more preparation than financing a primary residence because the down payment, reserves, documentation, and rates can differ. The process itself still involves an application, credit and income review, property evaluation, underwriting, disclosures, and closing. How difficult it is depends on your finances, property, loan type, and lender policies.

How to avoid 20% down payment on investment property?

A qualifying one-unit conventional investment property purchase may allow a down payment as low as 15%, although credit, unit count, and lender policies can increase the requirement.

 Another route is to buy a qualifying multiunit primary residence and rent the other units. FHA loans may be available with as little as 3.5% down, while an eligible VA loan may have no required down payment. Both FHA and VA financing require you to occupy one of the units as your primary residence. Review options for buying a rental without a down payment without treating every strategy as a no-money-down investment loan.

Is it possible to get a loan for an investment property?

Yes. A qualifying residential rental may use a conventional, DSCR, portfolio, or other residential investment property loan. Depending on your circumstances, you could also use a home equity loan, cash-out refinance, bridge loan, or private financing. Commercial real estate and raw land require different lenders and products.

What’s the difference between an investment property and a second home?

A second home is occupied personally for part of the year, while an investment property is generally owned primarily to generate rental income or another investment return and isn’t occupied by yourself.

What is the 2% rule for investment property?

The 2% rule says you can expect positive ROI from your rental property if the market will support you charging monthly rent equivalent to at least 2% of the purchase price. There is no hard and fast rule, though. Others will tell you to follow the 1% rule.

What are alternatives to investment property loans?

Alternatives may include a home equity loan, HELOC, cash-out refinance, private loan, portfolio loan, bridge loan, partnership, seller financing, commercial loan, or cash purchase. Each changes the collateral, repayment structure, cost, or ownership arrangement.

The bottom line: Compare investment property loans before you apply

Investment property loans can help you finance income-producing real estate, but the right path depends on occupancy, property type, credit, down payment or equity, reserves, rates, and the property’s projected cash flow. Understanding the benefits of real estate investing is only one part of the decision. Compare the full cost and make sure the property fits your budget, time, and goals.

If you’re ready to get started, you can apply for a mortgage online.

¹ Rate pricing and closing costs dependent on loan qualification requirements and factors including but not limited to credit, income, assets, down payment, product selection and loan amount. This is not a commitment to lend.

² Rocket Mortgage is not acting on behalf of FHA or HUD.

³ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁴ Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

⁵ Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.

This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage LLC or its affiliates.