Investment Property Loans: A Guide for Rental Buyers

The main investor loan paths

• Conventional investment loan. Uses your personal income, tax returns and credit. When your income supports it, this is often the least expensive path.
• DSCR loan. Looks mainly at the property’s rent compared with its full monthly payment. The DSCR guide explains the math.
• Short-term financing. Bridge and fix-and-flip loans cover a purchase and repairs, and are paid off by a sale or a longer-term refinance.

Buying a two to four unit property and living in one unit is different. That is financed as a home you live in, often with a smaller down payment.

Who each path tends to fit

• Conventional: buyers with documented income and room in their budget for another payment
• DSCR: self-employed buyers, buyers with several properties, and buyers who want the rental to stand on its own numbers
• Short-term: experienced investors with a clear plan and timeline for the repairs and the exit

What to gather

• The property address or purchase contract
• Current leases, or an estimate of market rent
• A landlord insurance quote and the property tax amount
• Two months of statements showing the down payment and reserves
• A list of properties you already own: address, payment, rent, taxes and insurance
• Entity documents, if you plan to buy in an LLC
• For a conventional loan: two years of tax returns and recent pay stubs

Common snags

• Rent that does not cover the payment. Taxes, insurance and association dues count, not just principal and interest.
• Reserves. Lenders want money left over after closing, and the amount grows with the number of financed properties.
• Short-term rental income. Nightly rental income is harder to document than a signed lease.
• Prepayment terms. Many DSCR loans carry a prepayment penalty in the early years. Match it to how long you plan to hold.
• Occupancy. The loan has to match how the property is really used. A rental is financed as a rental.

Your next step

Bring the address, the expected rent and how you plan to hold or exit the property. A first call can sort out which path fits before you spend money on an appraisal.

When you want to talk it through, book a short phone call with Zak on Chris Lamm’s team at MortgageOne. No credit check is needed for a first call, and you can bring as many questions as you like.