You cannot get PMI on an investment property. Private mortgage insurers only write policies on owner-occupied homes, so there is no low-down-payment insurance product that lets you put 5 or 10 percent down on a rental the way you might on a primary residence. Instead, lenders manage the higher default risk of non-owner-occupied loans through larger down payments, upfront pricing adjustments baked into your interest rate, tighter qualification standards, and cash reserve requirements that kick in after closing.
Why Private Mortgage Insurance Is Not Available on Rentals
PMI exists to protect the lender when a borrower puts down less than 20 percent on a home purchase, covering part of the lender’s loss in a default and making low-down-payment lending possible for millions of buyers each year.1Consumer Financial Protection Bureau. What Is Private Mortgage Insurance That product is built around owner-occupied homes. Insurers generally refuse to write policies on non-owner-occupied properties because default risk is meaningfully higher: the borrower doesn’t live there, rental income can fluctuate, and the insurers’ pricing models don’t support it.
There is no lender-paid PMI alternative for a straight investment purchase, and no government mortgage insurance program fills the gap either. If you’re buying a property you won’t live in, your down payment is the lender’s only cushion against loss, and that reality shapes every other rule below.
How Lenders Price Investment Property Risk Instead
Without PMI in the picture, lenders shift the cost of higher default risk onto the borrower through Loan Level Price Adjustments. LLPAs are upfront fees, expressed as a percentage of the loan amount, that Fannie Mae and Freddie Mac require based on factors like property type, credit score, and loan-to-value ratio. For investment properties, the LLPA ranges from roughly 1.125 percent to over 4 percent of the loan amount depending on your credit profile and down payment.2Fannie Mae. Loan-Level Price Adjustment (LLPA) Matrix A borrower with a 740 score and 25 percent down pays a much smaller adjustment than someone with a 680 score and 15 percent down.
Most borrowers don’t write a separate check for LLPAs. Lenders roll them into the interest rate, which is why investment property rates run noticeably higher than rates on a primary residence from the same lender on the same day. Expect roughly 0.5 to 1.5 percentage points more in rate, with the exact premium driven by credit score, down payment, and whether the transaction is a purchase or a refinance.
Down Payment Requirements for Investment Properties
The minimum down payment depends on how many units the property has. For a single-unit investment property, Fannie Mae caps the purchase loan-to-value ratio at 85 percent, meaning you need at least 15 percent down. For two- to four-unit investment properties, the maximum LTV drops to 75 percent, so you need 25 percent down.3Fannie Mae. Eligibility Matrix Many experienced investors aim for 20 to 25 percent regardless of the minimum, because more equity in the deal unlocks better rates and smaller LLPAs.
Cash-out refinances tighten things further. If you already own a rental and want to pull equity out, expect to leave at least 25 to 30 percent equity in the property after the refinance, depending on the number of units.
Gift Funds Are Not Allowed
One rule catches first-time investors off guard: gift funds cannot be used for any part of the down payment on an investment property. Fannie Mae’s selling guide states this plainly.4Fannie Mae. Selling Guide – Personal Gifts Primary residence buyers can often receive a family gift covering their entire down payment; investment property borrowers must fund it from their own verified assets. The lender will trace every dollar in your bank statements to confirm the funds are genuinely yours.
How Lenders Qualify Your Income
Investment property underwriting uses the same debt-to-income framework as any other mortgage, but the thresholds and income calculations differ. For loans run through Fannie Mae’s Desktop Underwriter, the maximum allowable DTI is 50 percent. Manually underwritten investment loans have a lower ceiling of 36 percent, which can stretch to 45 percent if the borrower meets specific credit score and reserve requirements.5Fannie Mae. Selling Guide – Debt-to-Income Ratios Most investment loans run through automated underwriting, so the 50 percent cap is the one that matters in practice.
The 75 Percent Rental Income Rule
Lenders don’t credit you with the full rent a property brings in. When using lease agreements or market rent estimates to qualify, Fannie Mae requires the lender to count only 75 percent of gross monthly rent as income. The remaining 25 percent is assumed lost to vacancy and maintenance.6Fannie Mae. Selling Guide – Rental Income A property renting for $2,000 a month qualifies as $1,500.
That adjusted rent is then compared against the property’s full monthly payment: principal, interest, taxes, and insurance. If the adjusted rent exceeds the payment, the surplus is added to your income. If the rent falls short, the deficit is added to your debts. This math can make or break a deal, especially on higher-priced properties where rents don’t fully cover the mortgage at current rates.
Landlord Experience Affects the Math
Whether you’ve been a landlord before affects how underwriters treat rental income. Fannie Mae looks for a history of property management, typically documented through Schedule E on your tax returns showing rental income from existing properties.7IRS. About Schedule E (Form 1040) Without that track record, the rental income available for qualification may be limited to an amount that only offsets the subject property’s own payment rather than boosting your overall income.6Fannie Mae. Selling Guide – Rental Income First-time landlords should expect tighter math on their application.
Reserve Requirements After Closing
Beyond the down payment, you need cash left over after closing. Fannie Mae requires six months of principal, interest, taxes, and insurance in liquid reserves for every investment property transaction.8Fannie Mae. Selling Guide – Minimum Reserve Requirements If the monthly payment on the new property is $1,800, you need at least $10,800 in a verifiable account after your down payment and closing costs are paid.
The math gets heavier if you own multiple financed properties. Fannie Mae requires additional reserves based on the total unpaid principal balance across your other mortgages, excluding your primary residence and the property you’re buying:
- One to four financed properties: 2 percent of the combined outstanding loan balances
- Five to six financed properties: 4 percent of the combined outstanding loan balances
- Seven to ten financed properties: 6 percent of the combined outstanding loan balances
Fannie Mae allows a maximum of ten financed properties per borrower, and loans for borrowers with seven to ten are only available through automated underwriting.3Fannie Mae. Eligibility Matrix At that level, reserves can exceed the down payment itself, so anyone scaling a portfolio needs to plan liquidity well before the next application.
Owner-Occupied Multi-Unit: The Closest Thing to PMI on a Rental
The most effective way around investment property financing restrictions is buying a property you actually live in. If you purchase a duplex, triplex, or fourplex and occupy one of the units, the property qualifies as your primary residence under most loan programs. That opens the door to FHA loans with as little as 3.5 percent down, conventional loans with PMI, and interest rates that match owner-occupied pricing. Rental income from the other units can help you qualify.
This approach shrinks or eliminates nearly every drawback described above: the higher down payment, the missing PMI option, the LLPA surcharges, and the tighter reserve rules all soften when the property is owner-occupied. The catch is that you must actually live there. Signing an occupancy certification you don’t intend to honor is mortgage fraud, and lenders actively check for it.
DSCR Loans When Conventional Financing Doesn’t Fit
Conventional financing isn’t the only path. Debt Service Coverage Ratio loans have become a popular alternative for investors who can’t meet conventional DTI limits or don’t want to document personal income. A DSCR loan qualifies based on the property’s income rather than yours. The lender divides expected rent by the total monthly debt payment, and if the ratio hits 1.0 or higher (rent at least covers the mortgage), the loan is potentially viable. A ratio of 1.25 or higher typically unlocks the best terms.
The trade-off is cost. DSCR rates typically run 1 to 2 percentage points higher than conventional investment property rates. Borrowers generally need at least a 680 credit score, and down payment requirements range from 15 to 30 percent depending on credit score and the property’s DSCR ratio. A borrower with a 740 score and a 1.25 DSCR might put down 15 percent, while someone with a 680 score would need 25 to 30 percent.
The main appeal is that DSCR lenders don’t ask for tax returns, W-2s, or pay stubs, which helps self-employed investors, borrowers with complex tax situations, and anyone who already owns enough properties to make conventional DTI math difficult. Beyond the higher rate, the biggest catch is that many DSCR loans carry prepayment penalties lasting three to five years.9Consumer Financial Protection Bureau. What Is a Prepayment Penalty Conventional Fannie Mae loans do not, so investors who plan to refinance or sell within a few years should factor that into the comparison.
Occupancy Fraud Is Not a Workaround
Some borrowers are tempted to claim they’ll live in a property to get PMI eligibility, a lower rate, or a smaller down payment, then rent it out immediately. This is occupancy fraud. Every mortgage application includes a signed occupancy certification, and misrepresenting an investment property as a primary residence is a federal crime under 18 U.S.C. § 1014, carrying penalties of up to $1,000,000 in fines and 30 years in prison.10Office of the Law Revision Counsel. 18 USC 1014 – Loans and Credit Applications Generally
Criminal prosecution is uncommon for isolated cases, but the practical consequences are still severe. If a lender discovers the misrepresentation, the standard response is invoking the acceleration clause in the mortgage, which makes the entire remaining balance due immediately. If you can’t pay, foreclosure follows. Some lenders also report the fraud to federal agencies, creating a paper trail that makes future borrowing far harder. The rate and down payment savings from occupancy fraud are never worth the exposure.