Financing a rental is harder than financing the home you live in, and the differences are mostly about cash. To get a mortgage for a rental property, plan on 15% to 25% down depending on the property type, a credit score of at least 620 (and ideally 740+ for decent pricing), six months of mortgage payments in reserve, and an interest rate roughly 0.5% to 1.5% higher than what you’d pay on a primary residence. Lenders will also only credit you with 75% of the projected rent when deciding whether you can afford the loan.
How Much You Need to Put Down
The down payment is where most would-be investors get stuck. For a single-family rental run through Fannie Mae’s Desktop Underwriter, the maximum loan-to-value is 85%, so you need at least 15% down. A manually underwritten loan caps at 80% LTV, which means 20% down. Buy a duplex, triplex, or fourplex and the floor rises to 25% down regardless of underwriting path.1Fannie Mae. Eligibility Matrix – December 10, 2025
Private mortgage insurance isn’t available on investment properties, which is why the required down payment is so much larger than on an owner-occupied home. The lender needs more of your own money in the deal because there’s no insurer standing behind it.
One rule surprises people: gift funds from family are not allowed on an investment property purchase. Fannie Mae’s guidelines prohibit them outright.2Fannie Mae. Personal Gifts Every dollar of the down payment has to come from your own documented funds, and underwriters will scrutinize bank statements for recent large deposits that look like disguised loans. Putting down more than the minimum helps on two fronts: it lowers the monthly payment and it reduces the pricing adjustments baked into your rate.
Credit Score and Debt-to-Income
The floor for a conventional investment property loan is a 620 credit score, matching Fannie Mae’s general minimum.3Fannie Mae. General Requirements for Credit Scores Qualifying at 620 and getting a competitive rate are different problems. Borrowers above 740 see meaningfully lower loan-level pricing adjustments, which flows straight through to a lower interest rate. At 620 you’ll pay the highest investment-property rate the lender offers.
Fannie Mae’s Desktop Underwriter doesn’t publish a hard DTI maximum for investment purchases; it weighs the whole file.1Fannie Mae. Eligibility Matrix – December 10, 2025 In practice most approvals come in below 45% to 50%, and individual lenders layer on their own stricter overlays. Strong credit and heavy reserves can offset a higher DTI.
Cash Reserves After Closing
Beyond the down payment and closing costs, you need liquid reserves equal to six months of principal, interest, taxes, and insurance on the new property, sitting in accessible accounts after you close.4Fannie Mae. Minimum Reserve Requirements If PITI runs $1,800, that’s $10,800 you cannot touch at closing. The buffer is there to cover vacancy, repairs, or a non-paying tenant.
If you already own other financed properties, you’ll need additional reserves calculated as a percentage of the unpaid balances on those loans. Investors scaling a portfolio often find this is the point where their cash runs out before their ambition does.
Retirement accounts count, but only the vested balance, and only if the money is actually withdrawable. Funds that can’t be accessed until you leave your employer or retire don’t qualify.4Fannie Mae. Minimum Reserve Requirements Most lenders will accept a 401(k) or IRA balance without requiring you to liquidate, but you’ll need to document both the balance and the withdrawal terms.
How Lenders Count the Rent
You won’t get credit for 100% of the rent. Fannie Mae requires lenders to multiply gross monthly rent by 75% and use that reduced number as qualifying income. The missing 25% is assumed lost to vacancy and upkeep.5Fannie Mae. Rental Income
That math matters. A property that rents for $2,000 counts as $1,500 of income. If PITI on that property is $1,600, the shortfall gets added to your overall debt load instead of helping you qualify. Running your own projections at full rent is how investors talk themselves into deals the lender won’t approve.
To establish the rent figure, you provide either the current lease or a market rent analysis from the appraiser. For single-family investments where you’re using rental income to qualify, Fannie Mae requires the appraiser to complete a Single-Family Comparable Rent Schedule (Form 1007) alongside the valuation.6Fannie Mae. Appraisal Report Forms and Exhibits The lender uses the lower of the Form 1007 estimate or the existing lease, then applies the 75% factor.
What the Interest Rate Will Look Like
Investment property rates run noticeably higher than primary residence rates, and the reason is pricing structure, not negotiation. Every conventional loan gets hit with loan-level price adjustments based on risk factors, and “investment property” is one of the expensive ones. At 75% LTV the LLPA is 2.125%; at 85% LTV it climbs to 4.125%.7Fannie Mae. LLPA Matrix Those adjustments stack on top of credit-score pricing and usually get rolled into the rate.
As a rough guide, expect your rate to land somewhere between 0.5% and 1.5% above what an equally qualified borrower would pay on a primary home loan. Dropping from 85% LTV to 75% LTV cuts the Fannie Mae pricing hit nearly in half, which is another argument for a bigger down payment.
Documents You’ll Need to Gather
Investment files get more scrutiny than primary residence files. At a minimum, come prepared with:
- Two years of federal tax returns with all schedules, including Schedule E if you already report rental income.8Fannie Mae. Tax Return and Transcript Documentation Requirements
- Your most recent W-2s and current pay stubs.
- Two months of complete bank statements, every page, for any account funding the down payment or counted as reserves.9Fannie Mae. Allowable Age of Credit Documents and Federal Income Tax Returns
- Any existing lease on the property, or a market rent analysis if it’s vacant.
- If you’re buying through an LLC, the articles of organization and operating agreement so the lender can verify signing authority.
The formal application is the Uniform Residential Loan Application (Form 1003). In the property section, list occupancy as “investment.” If you want projected rent factored into qualifying ratios, include it in the income section. Having a signed lease or completed Form 1007 ready at application speeds things up considerably.
From Application to Closing
After you submit the application, the lender issues a Loan Estimate laying out the rate, monthly payment, and itemized closing costs. Investment property closing costs typically run 2% to 5% of the purchase price, covering appraisal, title, origination, recording, and prepaid taxes and insurance.
Next comes the appraisal. For rentals, the appraisal does double duty: it establishes market value and, if you’re qualifying with rental income on a single-family property, it includes the Form 1007 rent schedule alongside the standard report.6Fannie Mae. Appraisal Report Forms and Exhibits
Then underwriting. An underwriter walks every document against Fannie Mae’s guidelines and the lender’s overlays. Expect conditional approval requests asking you to source deposits, provide additional paperwork, or explain discrepancies. This phase takes roughly two to four weeks. Respond to conditions the same day whenever you can. Slow responses are the single biggest reason investment property closings get pushed.
Once the file clears underwriting, the lender must deliver the Closing Disclosure at least three business days before signing.10Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs Compare it line by line to the original Loan Estimate. At closing, you sign the note and deed of trust, wire your funds to escrow, and the transaction records with the county.
Landlord Insurance, Not Homeowners
The lender will require a landlord policy in place before closing. Homeowners insurance is written for owner-occupied residences and won’t cover a rental; if the lender discovers you have the wrong policy, they can force-place coverage at your expense. Landlord policies cover the structure, carry liability protection for tenant and guest injuries, and include loss-of-income coverage during repair periods. They don’t cover a tenant’s personal property. Premiums run roughly 25% higher than standard homeowners insurance.
DSCR Loans When Tax Returns Don’t Show Enough Income
Conventional loans work for W-2 employees whose returns show real income. Self-employed investors, people who write off heavily, and anyone who already owns several properties often can’t qualify under standard guidelines no matter how profitable the business actually is. Debt service coverage ratio loans solve that by qualifying you on the property’s rental income relative to its mortgage payment, not on your personal tax returns.
The ratio is the property’s net operating income divided by annual debt service. A 1.0 means rent exactly covers the payment. Most DSCR lenders want somewhere between 1.0 and 1.25 as a minimum, and properties above 1.5 get the best pricing.
The trade-off is price. DSCR loans are non-qualified mortgages from portfolio lenders and private capital, carrying rates roughly 0.5% to 1.5% higher than conventional investment rates. Down payments typically start at 20% to 25%. For an investor whose Schedule E shows a loss because of depreciation, a DSCR loan may be the only realistic financing. These loans also sit outside Fannie Mae’s financed property cap, which matters once you’re building a larger portfolio.
The Owner-Occupied Multi-Unit Shortcut
If you’re willing to live in one unit of a two-to-four-unit property, you can skip most of the investment property requirements. FHA loans allow 3.5% down on a multi-unit when you occupy one unit as your primary residence. The remaining units can be rented out immediately.
The cash difference is dramatic. On a $400,000 fourplex, a conventional investment loan requires $100,000 down. An FHA owner-occupied loan on the same property requires $14,000. You’ll pay FHA mortgage insurance, and you have to actually live in a unit for at least 12 months, but for a first-time investor with limited capital this is the most accessible way in. The FHA will even allow rental income from the other units to help you qualify, though documentation is strict.
The Ten-Property Ceiling
Fannie Mae caps the number of financed one-to-four-unit residential properties a borrower can hold at ten, including a mortgaged primary residence.11Fannie Mae. Multiple Financed Properties for the Same Borrower Once you hit that number, you cannot get another conventional conforming loan on an investment property. Commercial real estate, buildings with more than four units, vacant lots, and timeshares don’t count against the limit.
Investors going beyond ten properties typically turn to DSCR loans, portfolio loans held by local banks or credit unions, or pay down and refinance existing properties to open slots within the cap. The planning matters: running into the ceiling mid-portfolio with no alternative lined up can stall growth for months.