How to Get a Loan for Rental Property

April 28, 2025 7 min read

How to Secure a Rental Property Loan

Investing in rental properties can be a great way to generate passive income, build wealth, and diversify your investment portfolio. However, purchasing a rental property usually requires financing, and securing the right rental property mortgage can be more complex than getting a loan for a primary residence. Lenders have stricter rental property loan requirements, including higher down payments, credit score thresholds, and proof of stable income.

Understanding how rental property loans work, what lenders look for, and how to meet their requirements will help you secure the best possible financing for your investment. In this article, we’ll break down everything landlords and real estate investors need to know about obtaining a mortgage for rental property, from qualifying criteria to loan options and strategies for securing approval.

Understanding Rental Property Loans

So, you've worked with a real estate agent to find the best future rental property for your business and are ready to move forward with the purchase and mortgage process. Where do you start with understanding investment property loans?

A rental property mortgage is a type of loan used to finance income-generating real estate, such as single-family homes, duplexes, and multi-unit properties.

Unlike primary home loans, lenders view rental property loans as riskier because borrowers rely on rental income to make payments. As a result, mortgage lenders often impose stricter conditions, such as:

Higher interest rates: Since lenders consider rental properties higher risk, interest rates are typically 0.5% to 0.75% higher than those for a primary residence, according to Rocket Mortgage (however, keep in mind that rental business owners can deduct mortgage interest from their taxes).
Larger down payment: Expect to pay at least 15-25% down, compared to as little as 3-5% for a primary home.
Higher credit score requirements: Many lenders require a minimum credit score of 680-700 for rental property loans.
Proof of rental income potential: Lenders may require lease agreements or an appraisal of projected rental income to ensure the property can generate enough cash flow.

These stricter requirements for investment property mortgages help lenders mitigate the risk associated with rental properties, ensuring that borrowers have the financial stability to manage their investment.

Rental Property Loan Requirements

Now that you have a basic understanding of rental property loans, we can discuss the requirements you must meet to be approved for one. Before applying for a mortgage for rental property, you’ll need to meet specific lender criteria. Here’s what most lenders look for:

Credit Score and Financial History: A strong credit score improves your chances of loan approval and better interest rates. Most lenders require a minimum credit score of 680, though some may accept a lower score with a higher down payment. A score of 700 or higher typically qualifies for the best rates. Lenders will also review your debt-to-income (DTI) ratio, which should be below 43%. Keeping your existing debts low improves your borrowing power and helps you qualify for better loan terms.
Down Payment: Unlike primary home loans, which may allow low down payments through programs like FHA or VA loans, rental property loans require a minimum down payment of 15-25%. The exact percentage depends on your credit score, loan type, and lender requirements. A larger down payment can reduce your interest rate, lower your monthly mortgage payments, and improve your odds of loan approvals.
Cash Reserves: Many lenders require borrowers to have cash reserves to cover 3-6 months of mortgage payments, including principal, interest, taxes, and insurance (PITI). This ensures you can keep up with payments even if the property remains vacant for a period.
Proof of Rental Income Potential: Lenders want to see that your investment property will generate income. If the property is already rented, you may need to provide lease agreements and proof of rental income. For vacant properties, an appraisal with a rental income analysis can estimate expected cash flow.

Meeting these rental property loan requirements is essential for securing financing and ensuring your rental investment remains profitable.

Types of Rental Property Loans

Now that you’ve confirmed that you meet the proper loan requirements, you must next consider which type of loan is the correct fit for you. There are several types of rental property mortgages, each with different terms, benefits, and qualifications. Choosing the right one depends on your investment strategy and financial situation.

Conventional Loans: A conventional loan is the most common financing option for rental properties. These residential mortgages follow Fannie Mae and Freddie Mac guidelines and typically require a 15-25% down payment, a credit score of at least 680, and a stable income and employment history. Since conventional loans offer competitive interest rates and long repayment terms, they are an excellent choice for investors looking to finance single-family homes or small multifamily residential rental properties.
Government-Backed Loans (FHA and VA Loans): Government-backed loans like FHA loans and VA loans are typically used for primary residences, but they can sometimes be applied to rental properties if the borrower lives in one unit of a multi-unit property. FHA loans require a 3.5% down payment but must be owner-occupied for at least one year. VA loans are available for veterans and active-duty military members, allowing 0% down for owner-occupied multi-unit properties. These options work well for house hacking, which is living in one unit while renting out the others to generate income.
Portfolio Loans: Portfolio loans are offered by banks and credit unions that keep the loans in-house rather than selling them to investors. These loans offer more flexibility with credit score and income requirements, making them ideal for investors with multiple rental properties.
Commercial Loans: Investors purchasing five or more rental units may require a commercial mortgage. These loans have different qualification standards and may require a higher down payment and business financials.

Understanding the different loan options helps you choose the best rental property mortgage for your needs and investment goals.

How to Get Approved for a Rental Property Mortgage

After you’ve decided which loan is the best fit for you, you’ll next decide your approach to getting approved. Once you’re ready to apply for a mortgage for rental property, here are the steps to improve your chances of approval:

Improve Your Credit Score: Pay down existing debts, avoid late payments, and check your credit report for errors. A higher credit score increases your chances of securing better loan terms
Save for a Higher Down Payment: The larger your down payment, the better your loan terms will be. Aim for at least 20-25% to secure lower interest rates and avoid private mortgage insurance (PMI)
Reduce Your Debt-to-Income Ratio: Lenders prefer borrowers with a DTI below 43%. Paying off outstanding debt before applying can improve your approval chances
Gather Financial Documents: Lenders will typically require tax returns (typically from the last two years), bank statements, lease agreements (if applicable), and property appraisal and rental income estimates. Having these documents and financial reports ready speeds up the approval process and demonstrates your financial stability.
Shop Around for Lenders: Compare loan offers from multiple lenders to find the best interest rates and terms for your rental investment. Consider working with lenders experienced in real estate investment financing.

By following these steps, you can strengthen your mortgage loan application and secure the best financing for your rental property.

Understanding How to Get Loans for Rental Property

Securing a rental property mortgage requires meeting stricter rental property loan requirements, including higher down payments, strong credit scores, and proof of rental income. Understanding how different rental property loans work and preparing your financials ahead of time can help you navigate the lending process with confidence. Whether you opt for a conventional loan, portfolio loan, or government-backed financing, selecting the right mortgage for rental property is key to ensuring long-term profitability.