Investment property loans finance homes you buy to rent out or resell rather than live in: single-family homes, condos, townhomes and two- to four-unit buildings.
How they differ from a loan on your own home
- Larger down payments. Typically 15% to 25% depending on the program and property type.
- Reserves. Lenders usually want several months of payments in the bank after closing.
- Pricing. Rates and fees run higher than on a primary residence because the risk is higher.
- Rental income can often be counted toward qualifying, using a lease or the appraiser's rent estimate.
Two ways to qualify
- Conventional investment loans qualify on your personal income, debts and credit, with the rental income added in.
- DSCR loans (debt-service coverage ratio) qualify mainly on the property: whether its expected rent covers the mortgage payment. They suit self-employed investors and borrowers who already own several rentals. Expect a larger down payment, and sometimes a prepayment penalty, in exchange.
Second homes
A vacation home you use yourself and do not rent out full time is financed as a second home, with terms closer to a primary residence. The rules for what counts as a second home are specific; we will walk you through them.