Investment property financing refers to the methods used to fund the purchase of real estate that’s intended to generate income through renting, leasing, or resale. Here’s a breakdown of the key details, followed by a custom graphic to visually represent the concept.
Typically requires 15%–25% down, compared to 3%–5% for primary residences.
Lenders often expect a minimum credit score of 620–680, depending on the loan terms.
Interest rates are generally higher to offset the perceived risk of investment properties.
Lenders scrutinize DTI ratios more closely, often requiring lower ratios than for primary residences.
LTV ratios are usually capped at 75%–80%, necessitating significant equity.
Some sellers may offer financing options directly, bypassing traditional lenders.
Conventional Loans: Offered by banks or lenders; usually require a 20–30% down payment.
Hard Money Loans: Short-term loans from private lenders, ideal for fix-and-flip investors.
Home Equity Loans / HELOCs: Based on the equity in an existing property.
Commercial Loans: For large-scale investments; require more documentation and higher interest.
DSCR Loans (Debt-Service Coverage Ratio): Based on property’s income rather than borrower’s income.
Usually higher than for primary residences.
Depend on credit score, loan type, and down payment.
Typically 20% to 30%.
May be higher for multifamily or commercial properties.
Range from 5 to 30 years.
Fixed or variable interest rates.
Credit score of 620+ preferred.
Proof of income and employment.
Rental income projections for the property.
Lower Debt-to-Income (DTI) ratio.
Property insurance
Maintenance/reserves
Property management fees
Taxes and HOA fees
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