Investment property loans: How they work and where to find them

Core Insights - Investment property loans are essential for financing properties intended for income generation, such as rental properties or fix-and-flip projects [3][4][14] - Various types of investment property loans exist, each catering to different financial situations and investment goals [4][5][6] Types of Investment Property Loans - Conventional Loans: Suitable for purchasing one to four-unit properties, requiring a debt-to-income ratio of 45% or less [4] - Fix-and-Flip Loans: Designed for investors who buy, renovate, and sell properties quickly, typically requiring repayment within a few years [5] - Non-QM Loans: These loans do not adhere to standard requirements, allowing more flexibility in lending [6] - Bank Statement Loans: Qualify based on bank account trends rather than traditional income documents [7] - DSCR Loans: Allow qualification based on the property's cash flow without needing income or employment information [7] - Bridge Loans: Short-term financing for situations where funds from a property sale are delayed [8] - Hard Money Loans: Less reliant on creditworthiness, often provided by private lenders [9] - Home Equity Loans and HELOCs: Allow borrowing against the equity of existing properties to finance new investments [10][11] - FHA Loans: Can be used for investment properties under specific conditions, such as relocating for a job [12][13] Loan Requirements and Considerations - Higher Interest Rates: Investment property loans typically have interest rates 0.25% to 0.75% higher than traditional mortgages [15][16] - Larger Down Payments: Expect down payments of 15% to 25%, significantly more than the 3% to 3.5% required for primary residences [17] - Increased Cash Reserves: Lenders may require up to 12 months' worth of mortgage payments in reserves to mitigate risk [18] Lender Options - Many banks and mortgage lenders offer investment property loans, with specialized lenders like Angel Oak Mortgage Solutions providing a range of non-QM options [19] - The application process is similar to traditional mortgages, requiring documentation and property appraisal [20][21] FAQs on Investment Property Loans - Difficulty in Obtaining Loans: Generally, larger down payments and more cash reserves are needed compared to regular mortgages [22] - Down Payment Flexibility: Some lenders may allow down payments of less than 20%, but this varies [23] - Credit Score Requirements: Typically, a credit score in the mid-600 to 700 range is needed for most investor-focused loan products [25]