Loan Types for Investment Properties: What You Need to Know

Investing in real estate is an exciting way to build wealth, but financing an investment property is a bit different from buying a primary residence. Lenders see investment properties as higher risk, so the loan options, requirements, and terms can vary. Here’s a helpful guide to the most common loan types for investment properties.

1. Conventional Loans

These are the most popular loans for investment properties. They’re offered by banks and private lenders and aren’t backed by the government. Expect stricter requirements: higher credit scores, larger down payments (usually at least 15–20%), and proof of steady income.

2. FHA Loans

FHA loans are government-backed, but they’re typically only available for properties you intend to live in. However, you can use an FHA loan to buy a multi-unit property (up to four units) if you live in one unit and rent out the others.

3. VA Loans

VA loans are for eligible veterans and active-duty service members. Like FHA, you must occupy the property. You can buy a multi-unit property with a VA loan, living in one unit and renting the rest.

4. Portfolio Loans

These are loans that lenders keep in-house instead of selling on the secondary market. Portfolio loans may have more flexible terms and are often used by investors with unique needs or multiple properties.

5. Hard Money Loans

Hard money loans are short-term loans from private investors or companies. They’re based more on the property’s value than your credit. These loans have higher interest rates and fees, but they can be a quick solution for flipping houses or short-term investments.

6. DSCR Loans (Debt Service Coverage Ratio Loans)

DSCR loans are designed specifically for real estate investors. Instead of focusing on your personal income, lenders look at the property’s ability to generate enough rental income to cover the mortgage payments. If the rental income meets or exceeds a certain ratio (usually 1.0 or higher), you may qualify—even if your personal finances are complex. DSCR loans can be a flexible option for investors with multiple properties or non-traditional income sources.

7. Commercial Loans

If you’re investing in properties with five or more units, you’ll likely need a commercial real estate loan. These loans have different underwriting standards, larger down payments, and shorter terms.

Final Thoughts

Choosing the right loan for your investment property depends on your goals, finances, and the type of property. Each loan comes with its own pros and cons, so take time to compare options, talk to lenders, and make sure you’re setting yourself up for investment success!