To finance a second home for rental property, you’ll typically use a conventional investment-property mortgage that requires at least 15% down on a single-unit home, a credit score of 680 or higher, six months of cash reserves, and a debt-to-income ratio within Fannie Mae’s limits. FHA and VA loans don’t apply because they require you to live in the home. Rates run a quarter to three-quarters of a point above what you’d pay on a primary residence, and underwriting takes longer because the lender evaluates both your finances and the property’s projected rental income.
How Much You Need to Put Down
Down payment is where investment-property financing departs most sharply from a primary-home purchase. Fannie Mae’s eligibility matrix caps the loan-to-value ratio at 85% on a single-unit investment property, so you’ll need at least 15% down. For two- to four-unit properties, the cap drops to 75%, meaning 25% down.1Fannie Mae. Eligibility Matrix That equity cushion protects the lender if the property loses value or rental income dries up.
Loan size is capped too. The Federal Housing Finance Agency sets the conforming loan limit each year based on changes in average U.S. home prices. For 2026, the baseline limit for a single-unit property is $832,750, rising to $1,249,125 in designated high-cost areas.2FHFA. FHFA Announces Conforming Loan Limit Values for 2026 Anything above those thresholds enters jumbo territory, which carries its own underwriting standards and usually demands a larger down payment.
Credit Score and Debt-to-Income Standards
Most conventional lenders require a minimum credit score of 680 for an investment-property loan. A higher score does more than improve your approval odds. Borrowers at 720 or above typically qualify for noticeably lower interest rates. If you already own more than six financed properties, Fannie Mae raises the minimum to 720 for any new investment loan.3Fannie Mae. Multiple Financed Properties for the Same Borrower
Your debt-to-income ratio measures how much of your gross monthly income goes to debt payments, including the new mortgage. Fannie Mae caps this at 36% for manually underwritten investment loans, though that ceiling stretches to 45% with strong credit scores and adequate reserves. Loans run through Fannie Mae’s Desktop Underwriter automated system can be approved with ratios up to 50%.4Fannie Mae. Debt-to-Income Ratios Run the numbers before you shop. Between a primary mortgage, a car payment, and student loans, the 36% threshold fills fast.
Cash Reserves
Lenders want to see that you can survive a vacancy. For an investment-property purchase, Fannie Mae requires six months of reserves, measured by the total monthly payment including principal, interest, taxes, insurance, and any association dues.5Fannie Mae. B3-4.1-01, Minimum Reserve Requirements On a property with a $2,000 monthly payment, that’s $12,000 sitting in accessible accounts after you close.
Reserves must be liquid: savings, checking, or brokerage holdings you can sell quickly. Retirement accounts sometimes count at a discounted value. Equity in other properties does not. If you own multiple financed properties, reserve requirements stack. The more properties you carry, the more cash you need parked on the sidelines.
Loan Options for a Rental Property
Conventional Investment Loans
Conventional loans following Fannie Mae and Freddie Mac guidelines are the most common path. Interest rates on these loans run higher than what you’d pay on a primary residence, generally by a quarter to three-quarters of a percentage point. That premium reflects the higher default risk lenders see on non-owner-occupied properties.
Fannie Mae allows borrowers to hold up to ten financed properties, including a primary home, through its Desktop Underwriter system.3Fannie Mae. Multiple Financed Properties for the Same Borrower Once you cross six, expect tighter credit-score requirements and heavier reserve demands. That’s where portfolio building gets expensive in terms of cash on hand, even when the properties cash flow well.
DSCR Loans
Debt service coverage ratio loans qualify you based on the property’s income rather than your personal tax returns or employment history. The lender divides the property’s expected net operating income by the total debt service. A ratio of 1.0 means the property barely covers its mortgage; most lenders want 1.2 or higher to provide a cushion for vacancies and maintenance.
These loans work well for self-employed investors, or for borrowers whose tax returns show aggressive deductions that depress their reported income. The trade-off is cost. DSCR loans typically carry higher rates than conventional products, and most come with prepayment penalties. A common structure is a declining penalty over three to five years: 5% of the loan balance if you pay off in year one, stepping down 1% each year until it expires. You can sometimes buy your way out of the penalty with a higher rate upfront, but that math rarely works in your favor unless you plan to hold the property for a decade or more.
Home Equity Loans and HELOCs
If you’ve built substantial equity in your primary residence, a home equity loan or line of credit can fund part or all of a rental purchase. A home equity loan gives you a lump sum with a fixed rate and predictable monthly payments. A HELOC works more like a credit card, drawn against as needed, typically at a variable rate.6Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit
Most lenders require you to retain at least 15% to 20% equity in your primary home after the loan is issued.6Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit The risk is real. Your primary residence secures the debt, so if the rental underperforms and you can’t make the payments, your own home is on the line.
There’s a tax nuance worth knowing. Interest on a HELOC is deductible as home mortgage interest only if the funds are used to buy, build, or substantially improve the home securing the loan.7Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses Using a HELOC to buy a rental doesn’t qualify under that rule, but under interest tracing the interest can generally be deducted as a rental expense on Schedule E because the funds went to an investment property. Keep records showing exactly where the borrowed money went.
Why FHA and VA Loans Don’t Apply
Two of the most popular mortgage programs are off the table when the property is purely a rental. FHA loans require the borrower to occupy the home as a primary residence. The one workaround is buying a multi-unit property of up to four units, living in one unit, and renting the others. You cannot use an FHA loan to buy a property you have no intention of living in.
VA loans carry the same restriction. The Department of Veterans Affairs guarantees home loans exclusively for a veteran’s personal occupancy or that of a spouse or dependents.8Veterans Benefits Administration. VA Home Loans A purely rental property doesn’t qualify. Ignoring the occupancy requirement on either program can result in the loan being called due immediately and potential fraud charges.
Documents You’ll Need
Investment-property applications require more paperwork than a primary-home purchase because the lender evaluates two income streams: yours and the property’s. At minimum, plan to provide:
- Two years of federal tax returns, including Schedule E if you already report rental income or losses from other properties.9Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss
- Two months of bank statements. Fannie Mae requires statements covering the most recent 60 days for purchase transactions, and large or irregular deposits will trigger additional documentation requests.10Fannie Mae. Verification of Deposits and Assets
- The signed purchase contract for the property.
- Any existing lease agreements if the property already has tenants. These help establish the income figure the lender will use.
- Proof of insurance on your current primary residence, and eventually a landlord policy for the new property.
You’ll complete the Uniform Residential Loan Application, known as Form 1003, which Fannie Mae and Freddie Mac use as the standard intake document.11Fannie Mae. Uniform Residential Loan Application (Form 1003) Select “Investment” as the occupancy type. Choosing “Primary Residence” or “Second Home” to get better terms is mortgage fraud, and lenders verify occupancy intent during and after closing.
Appraisal, Underwriting, and Closing
Once the lender has your application package, they’ll order an appraisal. Investment properties get an extra step: Fannie Mae’s Form 1007, the Single Family Comparable Rent Schedule, which gives the lender an appraiser’s estimate of what the property can realistically earn as a rental, based on comparable properties in the area.12Fannie Mae. Single Family Comparable Rent Schedule If projected rent doesn’t support the loan amount, you may need a larger down payment or a different property.
Underwriting for investment properties runs longer than for a primary home. Expect 30 to 45 days from submission to clear-to-close, and longer if you own multiple properties. The underwriter verifies every piece of your financial picture: employment, credit, reserves, and the income projections for the property. Any discrepancy, even a small one, can trigger a conditions request that resets the clock by a week.
Closing costs on investment properties typically fall between 2% and 5% of the loan amount.13Fannie Mae. Closing Costs Calculator On a $400,000 loan, that’s $8,000 to $20,000 on top of your down payment and reserves. Costs include title insurance, attorney fees, recording charges, and lender fees. Budget for them separately.
What to Have Ready Before You Apply
Before you speak with a lender, run three numbers. Your available cash: down payment plus closing costs plus six months of reserves on the projected total payment. Your DTI with the new mortgage added: keep the target under 45% and know that anything over 36% depends on strong credit and reserves. Your credit score: pull it, and if it’s under 720, consider whether a few months of paydown could move you into a better rate tier before you apply.
Your first call sets the tone. Bring the property address, the purchase price, the expected rent, and a clean picture of your income and debts. If a lender’s terms look off, get a second quote. Investment-property rates and fees vary more between lenders than primary-home rates do.