Mortgages for Investment and Rental Properties

Understand Which Loan Types Can Finance Alternate Homes

An investment or rental property may be a good option for people who would like additional income. This extra money could be made by renting space on the property or by making improvements to a house and reselling it for a higher value. Whatever your intent, it is often easier to fund this endeavor with a mortgage.

How Do I Get a Mortgage for an Investment or Rental Property?

The first point to consider when looking for a mortgage for an investment property is whether or not it will be your primary residence. If you plan on living in a house while renovating it, or if you plan on buying a multi-family home and living in one unit while renting the rest of the space, you have more mortgage choices.

If you will not be living on the property you buy, you will have additional qualifications to meet, as non-primary residences are considered riskier loans for lenders. This is because the primary tenant (if there is one) is not the borrower.

Can You Use a VA or an FHA Loan for an Investment or Rental Property?

If the home you buy will not be your primary residence, you would not qualify for a VA or an FHA loan. The Department of Veterans Affairs and the Federal Housing Administration (who back VA and FHA loans, respectively) require that these loans only be used for primary residences.

It may be possible for you to purchase a property with up to four units with an FHA loan if you occupy one of the units as your primary residence. Learn more about FHA loans for investment properties.

Conventional Loans for Investment and Rental Properties

You may be eligible for a Conventional or Jumbo loan, regardless of whether the property you want to purchase or refinance will be your primary residence. Conventional loans are offered by private lenders without a government guarantee. They may have higher credit score requirements and more stringent financial requirements than VA and FHA loans.

Conventional loans also have limits on the amount of money you can borrow. The 2024 conforming loan limit for one-unit properties is $766,550 in most of the United States. If you want to finance an investment or rental property for less than this amount, a Conventional mortgage may be a good fit. Conventional loan limits can fluctuate each year, and the loan limit is often higher in more expensive areas of the country, like New York City and parts of California.

Jumbo Loans for Investment and Rental Properties

Jumbo loans are basically Conventional mortgages for amounts greater than the Conventional loan limits. You may also know them as non-conforming mortgages. If you want to finance an investment or rental property for more than $766,550, you will likely need to apply for a Jumbo loan. Jumbo loans have stricter requirements because the loan amount is larger. Many lenders want a higher credit score and lower debt-to-income ratio standards.

Rental and Investment Property Loan Requirements

The loan application process for rental and investment properties is a lot like applying for a primary home loan. It is still a good idea to get the home inspected, and it will likely still need to be appraised. You should expect to provide your financial history, proof of income, and submit to a credit check. You will also still need to pay closing costs.

Can I Get an Investment Property Loan with a Low Down Payment?

You may still be eligible for a loan for an investment or rental property with a lower down payment. Keep in mind that the size of your down payment may affect other costs.

When Should You Refinance an Investment or Rental Property?

There are a few reasons to refinance an investment or rental property. Many people refinance their loans to lower their interest rate, which, in turn, can lower their monthly payments. By refinancing, the total finance charges may be higher over the life of the loan. Refinancing can also result in a shorter loan term. When you refinance, you’ll replace your existing mortgage with a new mortgage that has a better interest rate or better terms.

Existing FHA loans can be refinanced into new FHA mortgages, just as existing VA loans can be refinanced into new VA mortgages. You can also refinance existing FHA, VA, and Conventional loans with Conventional refinances.

Conventional Refinancing for Investment or Rental Properties

Conventional refinances come with similar terms as Conventional loans. All loan types are eligible for Conventional refinancing and will require a new application, credit check, home appraisal, and a new set of closing costs. If your investment or rental property has not reached at least 20% in equity, you will still need to pay private mortgage insurance with a Conventional refinance.

FHA or VA Refinancing for Investment or Rental Properties

One difference between buying and refinancing an investment property with government-backed loans is the occupancy requirements. With a VA loan, you’ll need to certify that you’ve occupied one of the units as your primary residence in the past. You don’t need to currently occupy a unit. Investment properties financed with FHA loans have similar rules. You’ll need to have occupied one of the units of the property for a specific period of time, but you may not need to currently occupy a unit in order to refinance.

Freedom Mortgage offers an FHA streamline refinance program and a VA IRRRL streamline refinance program that allows you to refinance with less paperwork and includes easy credit requirements. This may allow you to close quicker – even in less than 30 days. However, neither of these streamline products allows you to get cash out of your property.

Freedom Mortgage is not a financial advisor. The ideas outlined above are for informational purposes only and are not investment or financial advice. Consult a financial advisor before making important financial decisions.

Last reviewed and updated October 2024 by Freedom Mortgage.