Investment Property Mortgages: Requirements and Rates
Last updated: October 2026 · Editorial standards
Financing an investment property is significantly harder and more expensive than financing a primary residence. Lenders view investment properties as higher risk — and price them accordingly. Here’s what to expect.
What Counts as an Investment Property?
For mortgage purposes, a property is an investment property if:
- You don’t plan to occupy any unit as your primary residence
- The primary purpose is generating rental income or appreciation
- It’s a vacation rental or short-term rental (Airbnb, etc.) that you don’t occupy for enough days to qualify as a second home
Properties with 1–4 units can use residential financing (with higher down payments and rates). Five or more units require commercial financing.
Investment Property vs. Primary Residence: Key Differences
| Primary Residence | Investment Property | |
|---|---|---|
| Minimum down payment | 3–5% | 15–25% |
| Interest rate premium | None (baseline) | +0.5–0.75% typically |
| Cash reserves required | 0–2 months | 6–12 months |
| Rental income counted? | N/A | 75% of gross rent |
| FHA/VA eligible? | Yes | No |
Down Payment Requirements
1-unit investment property: Minimum 15% with conventional loans (though 20–25% is more common and unlocks better rates)
2–4 unit investment property: Minimum 20–25% depending on lender
There are no low-down-payment government programs (FHA, VA, USDA) for non-owner-occupied investment properties.
Interest Rates on Investment Properties
Investment property mortgage rates are typically 0.5–0.75% higher than primary residence rates for the same loan terms. This premium reflects:
- Higher default risk (investors are more likely to walk away when things get hard)
- No government backing for investment property loans
- Secondary market pricing adjustments (LLPAs) from Fannie Mae and Freddie Mac
Example: If a 30-year primary residence rate is 7.0%, the same investor would pay roughly 7.5–7.75% on an investment property loan.
Cash Reserve Requirements
After closing, lenders typically require:
- 6 months of PITI (principal, interest, taxes, insurance) in reserves for a 1-unit investment property
- 12 months for multi-unit investment properties
These reserves must remain in your account after paying the down payment and closing costs.
How Rental Income Is Used for Qualification
When you have rental income from investment properties you already own, it’s documented on Schedule E of your tax returns (discounted by 25% for vacancy and expenses).
For properties you’re purchasing, the appraiser provides a market rent estimate. Lenders typically use 75% of that estimate.
Important: If you’re a new landlord with no rental history, the lender may not count projected rental income at all, making qualification harder.
Financing Strategies for Investment Properties
Conventional Investment Property Loans
The most common route. Standard 30-year mortgages with 20–25% down. Rates are higher but the terms are otherwise similar to primary mortgages.
DSCR Loans (Debt Service Coverage Ratio)
A non-QM loan product that qualifies based on the property’s rental income relative to the mortgage payment — not your personal income.
DSCR calculation: Monthly rental income / monthly PITI payment
- DSCR ≥ 1.0: Loan payment is covered by rental income
- DSCR ≥ 1.25: Strong; easier to qualify
- DSCR < 1.0: Loan payment exceeds rental income; harder to qualify
DSCR loans are popular with investors who have complex income (self-employed, multiple properties) or who want to qualify based on the deal rather than their personal finances.
Home Equity Loan or HELOC on Primary Residence
Tap equity in your primary home to fund the down payment on an investment property. This doesn’t involve a new investment property mortgage — the investment purchase is then cash (or a smaller loan).
House Hacking (Live in One Unit)
Buy a 2–4 unit property, occupy one unit, and rent the others. This qualifies as a primary residence, opening FHA (3.5% down) and VA (0% down) programs and primary residence rates.
1031 Exchange
For investors who own appreciated investment properties, a 1031 exchange allows deferring capital gains taxes by rolling proceeds into a new investment property.
Portfolio Loans for Multiple Properties
Fannie Mae limits investors to 10 financed properties. Beyond that, you need portfolio lenders who don’t sell loans to the secondary market. These lenders have more flexibility but typically charge higher rates.
Key Takeaways
Investment property financing is significantly more expensive than primary residence financing — expect larger down payments, higher rates, and strict reserve requirements. DSCR loans are worth exploring for investors who qualify based on the property’s cash flow rather than personal income. House hacking is the most cost-effective entry point for new investors.
Frequently Asked Questions
Can I use gift funds for an investment property down payment? No. Gift funds are not allowed for investment property purchases. The down payment must come from your own funds or business accounts.
How many investment properties can I finance? Through conventional Fannie Mae/Freddie Mac guidelines, up to 10 financed properties. Portfolio and private lenders can go beyond this.
Is it harder to get a mortgage for a vacation rental (Airbnb)? Yes. Short-term rental properties face stricter scrutiny. Some lenders treat them as investment properties regardless of your personal use. DSCR lenders are often the best fit for STR investors.
Do I need an LLC for investment property financing? Most conventional lenders require loans in your personal name. Some portfolio lenders offer LLC financing, which provides liability protection but typically at higher rates. Consult an attorney and financial advisor about the right structure.
