Financing Your First Investment Property: Loans, Down Payments & Rates

Conventional Loans for Investment Properties

Conventional loans are the most common financing option for investment properties. These are standard mortgages that conform to guidelines set by Fannie Mae and Freddie Mac. For investment properties, conventional loans require a minimum down payment of 20% to 25% — significantly higher than the 3% to 5% down allowed for primary residences. Your credit score should be at least 620 to qualify, but you will get the best rates with a score of 740 or higher. The debt-to-income (DTI) ratio must be under 43% for most lenders, though some will stretch to 45% with strong compensating factors.

One important advantage of conventional loans is that they are assumable in some cases, meaning if you sell the property, the buyer can take over your mortgage at your interest rate. This can be a powerful selling point if rates rise in the future. Conventional loans also allow you to finance up to 10 financed properties, after which you typically need portfolio or commercial loans. The maximum loan amount for a conventional conforming loan in 2026 is $766,550 for most areas, with higher limits in high-cost markets.

FHA Loans: Best for House Hacking

FHA loans (insured by the Federal Housing Administration) allow down payments as low as 3.5% with a credit score of 580 or higher. However, FHA loans require you to occupy the property as your primary residence for at least one year. This makes them unsuitable for pure investment properties but ideal for house hacking — buying a multi-unit property (duplex, triplex, or fourplex), living in one unit, and renting the others. The rental income from the other units can be used to qualify for the loan, and your tenant's rent payments effectively cover your mortgage.

House hacking with an FHA loan is one of the fastest ways to start building a real estate portfolio with minimal capital. A borrower with a 600 credit score and $10,500 (3.5% of $300,000) can purchase a fourplex, live in one unit, and rent three units. After one year, you can move out and purchase another property with another FHA loan, converting the first property to a fully rented investment property. The main drawbacks of FHA loans are the upfront mortgage insurance premium (1.75% of the loan amount) and ongoing MIP (approximately 0.85% annually) that stays for the life of the loan unless you refinance.

VA and Portfolio Loans

VA loans (for veterans and active-duty military) offer 0% down financing and can be used for investment properties under specific conditions. The property must have previously been occupied as the veteran's primary residence for at least 12 months. This means you can buy a property with a VA loan, live in it for a year, and then convert it to a rental. You can do this with multiple VA loans up to your full entitlement. VA loans have no monthly mortgage insurance, competitive interest rates, and flexible credit requirements. If you are a veteran, this is the cheapest financing option available for building a rental portfolio.

Portfolio loans are held by the originating bank instead of being sold to Fannie Mae or Freddie Mac. Because the bank keeps the loan on its books, it can set its own underwriting guidelines. Portfolio loans offer more flexibility for borrowers who do not qualify for conventional financing — such as self-employed borrowers, those with multiple properties already, or borrowers with higher DTI ratios. The trade-off is typically higher interest rates (0.5% to 1.5% above conventional rates) and larger down payment requirements (25% to 35%). Portfolio loans are best for experienced investors who need flexibility and have a strong relationship with their bank. Learn more real estate investing strategies →

DSCR Loans: Cash Flow Based Lending

DSCR (Debt Service Coverage Ratio) loans are a popular option for investors who have multiple properties and do not want to go through personal income verification. Instead of looking at your W-2s and tax returns, the lender evaluates the property's ability to generate enough rental income to cover the mortgage payment. The DSCR is calculated as the property's net rental income divided by the total debt service (principal, interest, taxes, insurance, and HOA). Most DSCR lenders require a DSCR of at least 1.0 (breakeven) to 1.25 (25% income cushion).

DSCR loans typically require 20% to 30% down and have interest rates 1% to 2% higher than conventional investment property loans. They are available for both short-term rentals (Airbnb) and long-term rentals, and some lenders allow cash-out refinancing. DSCR loans are ideal for self-employed borrowers who may have difficulty documenting income through traditional means, or for investors who want to scale quickly without W-2 income limits. The main disadvantage is the higher cost — both in rates and closing costs — and the fact that DSCR loans are non-qualified mortgages, meaning they do not have the same consumer protections as conventional loans.

Key Qualification Requirements

Regardless of the loan type, lenders will scrutinize the following five areas. First, credit score: 620 minimum for conventional, 580 for FHA, no minimum for VA (but most lenders prefer 620+). A 740+ score gets you the best rates. Second, down payment: 20% to 25% for conventional investment properties, 3.5% for FHA (owner-occupied), 0% for VA (primary residence conversion). Third, reserves: lenders want to see 2 to 6 months of PITI payments in liquid assets after closing, proving you can cover the mortgage if the property is vacant. Fourth, debt-to-income ratio: under 43% for conventional loans. Fifth, documentation: two years of tax returns, two years of W-2s, two months of bank statements, and proof of employment. Self-employed borrowers need two years of tax returns showing consistent or increasing income. Learn how credit scores affect your loan terms →

How much do I need for a down payment on an investment property?

For a conventional investment property loan, you need 20% to 25% down. On a $250,000 property, that is $50,000 to $62,500. Plus closing costs (2% to 5% of purchase price) and reserves (2 to 6 months of mortgage payments). Total cash needed is typically 25% to 35% of the purchase price. If you use an FHA loan for house hacking (buying a multi-unit and living in one unit), the down payment drops to 3.5% — just $10,500 on a $300,000 fourplex. VA loans for eligible veterans require 0% down if you live in the property for at least one year. DSCR loans require 20% to 30% down. The exact amount depends on the loan type, your credit profile, and the property's projected cash flow.

Can I use a primary residence loan for an investment property?

No — you cannot use a primary residence mortgage (FHA, VA, or conventional owner-occupied) to purchase a pure investment property that you do not plan to live in. Lenders require you to sign an occupancy affidavit stating you will live in the property within 60 days of closing. Using a primary residence loan for a non-owner-occupied property is considered occupancy fraud, which can result in loan cancellation, immediate repayment demands, and potential legal consequences. However, you can buy a multi-unit property with an FHA loan, live in one unit (satisfying the occupancy requirement), and rent the others. After one year, you are free to move out and convert the property to a full rental. This is legal and widely practiced under the name house hacking.

What credit score do I need?

The minimum credit score depends on the loan type. For conventional investment property loans: 620 minimum, but 740+ for the best rates. For FHA loans (owner-occupied multi-unit): 580 minimum with 3.5% down, or 500-579 with 10% down. For VA loans: no official minimum, but most lenders require 620+. For DSCR loans: typically 680 to 720 minimum. A higher credit score directly translates to a lower interest rate. On a $200,000 loan, the difference between a 680 score (approximately 8% rate) and a 760 score (approximately 7% rate) is approximately $135 per month or $48,600 over the life of a 30-year loan. Improving your credit score by even 20 points before applying can save you thousands. Check your credit report for errors, pay down credit card balances, and avoid applying for new credit in the six months before your loan application.

Is it easier to get a loan for a turnkey property or fixer-upper?

It is significantly easier to get a loan for a turnkey property (move-in ready) than a fixer-upper. Conventional and FHA loans require the property to meet minimum standards of safety, soundness, and security — called the Minimum Property Requirements for FHA or the Appraisal Requirements for conventional. A property with major structural issues, outdated electrical systems, or significant deferred maintenance will not qualify for standard financing. For fixer-uppers, you need a renovation loan like the FHA 203(k) (which requires owner occupancy) or a hard money loan (short-term, high-interest financing from private lenders). Hard money loans require 20% to 30% down, charge 10% to 15% interest, and have 12 to 24 month terms. They are best for experienced investors flipping properties, not for beginners buying their first rental. For your first investment property, buy a turnkey property that qualifies for conventional financing. Learn the BRRRR method for fixer-uppers →

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