The financing you choose for an investment property affects your returns, your qualifying requirements, and your flexibility. Here's a complete overview of every major financing option available to residential investors.
Conventional Investment Property Loans
Fannie Mae and Freddie Mac back conventional investment property loans up to 10 properties per investor (with different guidelines applying after the 4th). Key requirements:
- Down payment: 15% for single-family; 25% for 2–4 unit properties
- Credit score: 680+ (720+ for best rates)
- Rate premium: 0.75%–1.5% above primary residence rates
- Can use 75% of market rent to help qualify after owning rentals for 1+ year
DSCR Loans (Debt Service Coverage Ratio)
DSCR loans qualify you based on the property's income rather than your personal income — ideal for self-employed investors and those who have maximized conventional loan counts. DSCR = Monthly Rent / Monthly PITI. Lenders typically require 1.0–1.25x DSCR.
| Monthly Rent | Monthly PITI | DSCR | Likely Approval? |
|---|---|---|---|
| $2,500 | $2,000 | 1.25 | Yes — strong |
| $2,000 | $2,000 | 1.00 | Borderline — some lenders |
| $1,800 | $2,000 | 0.90 | No — most lenders |
Hard Money Loans
Hard money lenders are private individuals or companies that lend based primarily on the property's value, not your creditworthiness. Used primarily for fix-and-flip or short-term bridge financing. Expect rates of 10–15% + 2–5 points, 6–24 month terms.
Home Equity & Cash-Out Refinance
Using equity in your primary residence or existing rentals via a HELOC, home equity loan, or cash-out refinance can provide low-cost capital for additional investments. This leverages existing equity without requiring full conventional loan approval on a new property.
Seller Financing
In seller financing, the seller acts as the bank — you make payments directly to them. Can be negotiated for any amount with any terms both parties agree to. Especially useful for properties that don't qualify for conventional financing or when sellers want installment sale tax treatment.