A lot of people assume that getting a mortgage for a rental property works the same way as getting one for a home they're going to live in. It doesn't. Investment property loans come with stricter requirements, higher costs, and different qualification rules — and if you go in unprepared, those differences can derail a deal you thought was locked in.
On a primary residence, you might put down 3%, 3.5%, or 5%. On an investment property, the minimum for a conventional loan is typically 15% for a single-unit, and most lenders prefer 20–25%. You generally cannot use FHA or VA financing for a pure investment property — those programs are reserved for owner-occupied homes.
Investment property loans carry higher interest rates than primary residence loans — typically 0.5% to 1% higher, sometimes more. Factor this into your cash flow projections from the start.
Most lenders require investors to have cash reserves after closing — typically six months of PITIA (principal, interest, taxes, insurance, and association dues) for each investment property you own. These reserve requirements stack if you own multiple rentals.
Lenders typically count 75% of the gross rental income (to account for vacancy and expenses). The income often isn't counted dollar-for-dollar, and you may still need to qualify on your personal income alone for the full mortgage payment. This is worth discussing with a lender before you get under contract.
For most first-time investors with a W-2 job and straightforward finances, a conventional investment property loan is the clearest path. For investors who are self-employed, have complicated income, or already own multiple properties, a DSCR loan can be a better fit — it qualifies based on whether the property's rental income covers the mortgage payment.
Buying based on appreciation alone. Real estate does appreciate over time in most markets, but prices also flatten and dip. If your rental doesn't cash flow from the start, you're paying to own someone else's home.
Before you make an offer on any rental property, run the numbers. What's left after rent, vacancy, property management, insurance, taxes, repairs, and your mortgage payment? If the answer is zero or negative, be honest with yourself about whether the deal makes sense.
If you're thinking about buying your first rental and want to understand what financing looks like, reach out. There's no pressure — just a clear picture of what's possible.
