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Financing an investment property means qualifying for a loan built for a rental, not the home you live in. Expect a bigger down payment than a primary mortgage, a slightly higher rate, and underwriting that weighs the property’s own income almost as heavily as yours. Five loan types cover nearly every rental purchase: conventional mortgages, DSCR loans, portfolio loans, hard money loans, and a HELOC or cash-out refinance against a property you already own. Which one fits depends on your credit, your cash on hand, and how fast the deal needs to close.
Why Do Investment Property Loans Cost More Than a Primary Mortgage?
Lenders price in more risk on a rental because you’re statistically far more likely to walk away from a property you don’t live in than from your own home if money gets tight. That risk premium shows up in three places. Investment property rates currently run roughly 0.5 to 0.75 percentage points above a comparable primary-residence purchase rate, though the exact spread moves with the broader mortgage market. Lenders also cap how much they’ll finance, so the down payment runs well above the 3 to 5 percent common on a primary home. And most require reserves, cash sitting untouched beyond your down payment and closing costs, sized to cover several months of payments on every financed property you own.
If you’re still deciding whether a rental is the right move at all, our guide to investing in rental property for beginners walks through whether the numbers work before you start shopping for a loan.
What Loan Types Can You Use to Finance an Investment Property?
Five loan types handle the overwhelming majority of rental purchases, each suited to a different deal and a different borrower.
Conventional Loans
A conventional loan, sold to Fannie Mae or Freddie Mac after closing, is usually the cheapest way to finance a rental if you qualify on paper: steady income, a credit score in the high 600s or better, and enough saved for the down payment and reserves. Terms run the familiar 15, 20, or 30 years, and rates track the general mortgage market plus the investment-property premium described above. Lenders typically count a portion of the property’s rental income, often around 75 percent of the lease or an appraiser’s market rent estimate, toward your qualifying income. That helps, but it doesn’t replace a steady paycheck on the application.
DSCR Loans
A DSCR loan qualifies you against the property’s rental income instead of your personal income or tax returns, which is why investors with several properties or nontraditional income often prefer it over a conventional mortgage. DSCR stands for debt service coverage ratio: divide the property’s monthly rent by its total monthly payment, principal, interest, taxes, insurance, and any association dues, to get the number a lender cares about. A ratio of 1.0 means the rent exactly covers the payment, and most lenders want 1.1 or better before they’ll approve the loan. Because the underwriting skips your income entirely, many investors close DSCR loans through an LLC rather than their own name. If you already own the home you live in and are weighing that same structure, can I put my house in an LLC and rent it to myself covers the tradeoffs before you talk to a lender.
Portfolio Loans
A portfolio loan finances several rental properties under one loan instead of a separate mortgage for each, which is why experienced investors move to them once a portfolio grows past two or three properties. The lender keeps the loan on its own books rather than selling it, so it sets its own rules: cross-collateralization across every property in the loan, underwriting based on the portfolio’s combined income, and a down payment on the higher end of the range. That flexibility has a catch. If one property underperforms or you want to sell it individually, the loan documents govern what you can do, so read the cross-collateralization clause before you sign anything. Our guide to how to build a rental portfolio covers when scaling into a portfolio loan actually beats financing each property on its own.
Hard Money Loans
A hard money loan is a short-term, asset-based loan from a private lender who cares far more about the property’s after-repair value than your credit score, which makes it the standard financing for a fix-and-flip or a BRRRR purchase that needs work before it can be rented. Funding often lands in days rather than weeks, terms run 6 to 24 months, and rates typically sit well above conventional financing, often in the 8 to 12 percent range plus origination points, though hard money pricing tracks the broader rate environment closely. Lenders commonly finance 65 to 75 percent of the after-repair value, leaving you to cover the rest, plus rehab costs, from cash or another source. The loan only works with an exit already planned: refinance into a DSCR or conventional loan once the work is done, or sell before the term runs out.
HELOC and Cash-Out Refinance
If you already own property with equity built up, a home equity line of credit or a cash-out refinance can fund your next down payment without touching a rental-specific loan program at all. A HELOC works like a revolving credit line secured against your home. Draw what you need and pay interest only on the balance you use. A cash-out refinance replaces your existing mortgage with a larger one and hands you the difference in cash at closing, which resets the rate and term on your whole balance, not only the amount you pull out. Both typically cap borrowing around 80 to 85 percent of your home’s value, minus what you still owe.
How Do Lenders Decide How Much You Can Borrow?
Lenders weigh four things on an investment property application: your credit score, your debt-to-income ratio, your cash reserves, and the property’s own income, and a weak number in any one of them can sink an otherwise solid file. Credit score minimums commonly start in the low 600s for a conventional investment property loan, though the best pricing goes to borrowers well above 700. DSCR lenders often set the floor a bit higher, since they aren’t underwriting your income at all.
Debt-to-income ratio matters most on a conventional loan. Lenders add up your existing debts and the new mortgage payment, offset by the rental income they’ll count, and generally want the total at or below 45 percent of gross income, though strong reserves or an excellent credit score can buy some flexibility. Reserves close the gap between approval and denial more often than either of those numbers. Most lenders want cash covering several months of the property’s full payment sitting untouched in your account, and that requirement applies to every financed property on your credit file, not only the one you’re buying.
How Much Down Payment Do You Actually Need?
How much you put down depends entirely on which loan you use. The down payment figures below reflect current agency and lender guidelines, which shift with the broader mortgage market and your own credit profile.
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Conventional: 15 to 25 percent, with the higher end for anything above a single unit
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DSCR: 20 to 25 percent, occasionally higher when the ratio is thin
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Portfolio: 20 to 30 percent across the properties in the loan
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Hard money: no fixed percentage, but lenders typically finance 65 to 75 percent of after-repair value and you cover the rest
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HELOC or cash-out refinance: draws against equity you already have, not a new down payment at all
A 2-to-4-unit property changes this math if you plan to live in one unit yourself. FHA and other owner-occupied programs open up with a down payment as low as 3.5 percent, though the terms don’t shift with you once you move out. Our small multifamily investing guide covers financing a duplex through a fourplex in more depth, including that owner-occupant path.
FAQ
Can I use rental income from the property I’m buying to qualify for the loan?
Usually, yes, but the lender discounts it. Conventional lenders typically count about 75 percent of the lease or appraised market rent, banking the rest as a cushion for vacancy and expenses. A DSCR loan goes further and qualifies almost entirely on the property’s income, which is the whole point of the program.
Is it harder to get approved for an investment property loan than a primary mortgage?
Yes, on paper. You need a stronger credit score, a bigger down payment, and reserves you wouldn’t need for a home you live in. A DSCR loan sidesteps some of that gap by qualifying against the property instead of you.
Can I refinance an investment property loan later?
Yes. A common path is buying with hard money or a DSCR loan, then refinancing into a lower-rate conventional or portfolio loan once the property is stabilized and has a rent history. Budget for a second round of closing costs when you do.
Do I need an LLC to finance a rental property?
No. Conventional lenders and most DSCR lenders will close in your personal name. Some investors still choose an LLC for liability protection or to keep a growing portfolio organized, which usually points you toward a DSCR or portfolio loan rather than conventional financing.
What credit score do I need to finance a rental property?
Conventional loans commonly start in the low 600s, though rates improve noticeably above 700. DSCR lenders tend to want a higher floor since they skip your income entirely. Below that, hard money becomes the more realistic option, with the property’s value doing the work your score can’t.
This article is general information, not financial advice. Loan programs, rates, and qualification requirements change and vary by lender. For guidance on your specific situation, talk to a licensed mortgage lender or financial advisor.
