A few years back, Fannie Mae and its brother lender Freddie Mac launched loan programs called HomeReady and Home Possible, respectively. Their purpose? To help low- to moderate-income borrowers with little cash buy a home.

Which is great news for anyone looking to buy real estate with almost no money down.

Why? Because the bottleneck for most real estate investors, the number one constraint that prevents them from buying investment properties, is cash. Cold, hard cash.

Real estate investing has many perks over other types of investments, and in many ways, the greatest advantage and disadvantage are intertwined. Investors can use financing to buy investment properties – they can leverage other people’s money. Using an investment property loan, real estate investors to cover up to 90% of their buying cost.

No other type of investment can be financed at anywhere near that level.

The downside? It costs hundreds of thousands of dollars to buy an “average” investment property. Even when investors use an investment property loan to cover 90% of the purchase price, that still might mean coming up with $30,000. For a single investment property.

But what about homeowner loans, that finance 95%, 97%, even 100% of the purchase price? Can real estate investors ever use homeowner loans for investing in rental properties?

Yes, but only under specific circumstances. With the expansion of Fannie & Freddie’s 3%-down HomeReady and Home Possible loan programs, I figured now was a good time to break down those circumstances.

Here’s how you can buy an investment property using a homeowner mortgage program, to avoid massive down payments and score a low interest rate!


Overview of Fannie Mae’s New HomeReady Loan Program

HomeReady is designed to help lower-income homebuyers with minimal cash to buy a home.

It doesn’t have to be their first home, and it doesn’t have to be a purchase loan – refinances are allowed.

The minimum credit score for a HomeReady mortgage loan is 620. Which is generously low, but not as low as FHA’s minimum credit scores (580 for a 3.5% down payment, 500 for a 10% down payment).

Only owner-occupied properties are eligible, but we’ll talk more about that in a moment.

Here’s where it gets a bit sticky for real estate investors. To qualify for a HomeReady property loan, Fannie Mae and Freddie Mac do impose income limitations in some areas.

In many neighborhoods and land tracts, there are no borrower income ceilings. In others, they’re based on the local area median income (AMI). You can check specific neighborhoods’ income ceilings for HomeReady loans here.

It’s a bit strange: “You must have enough income to pay us back, but not more than the local average income!” Many homebuyers and house hackers find it a delicate line to walk.

If you’re a landlord already, you can use your rental income to help you qualify for a HomeReady loan.

As a final perk, parents and other non-occupants can co-sign on HomeReady loans to help borrowers qualify.

Ready for the bad news? HomeReady loans require far higher down payments for 2-4-unit properties. Plan on 15% down for duplexes, and 25% down for three- and four-unit properties. Which effectively makes them useless for investors looking to buy a multi-unit property for house hacking (more on that shortly).


Freddie Mac’s Home Possible Loan Program

Freddie Mac launched a similar loan program called Home Possible. The program has two options for financing properties: one with a 5% down payment and another with a 3% down payment.

For the 3% down option, a difference from Fannie’s HomeReady program is that the minimum credit score is a bit higher at 640. But the 5% down option allows borrowers with no credit history – a huge boon for many people who have not yet established their credit.

Even better for borrowers looking to use Home Possible financing as an investment property loan, the 5%-down Home Possible loan program allows 2-4-unit properties. Which makes Home Possible the better program for multifamily house hacking.

Wondering why you might consider Freddie Mac’s Home Possible program over FHA’s 3.5%-down loans?

Because of two other nice perks of both Freddie Mac’s Home Possible and Fannie Mae’s HomeReady loan programs. First, they don’t require lifelong mortgage insurance, unlike FHA’s new lending rules. Once the loan balance drops below 80% of the property value, borrowers can have the mortgage insurance removed.

The other advantage to the Home Possible loan program is that it allows flexibility on where the down payment comes from. Freddie Mac allows family members to contribute, employer contributions, and more. That definitely helps when you want to buy a property with no money down (at least none of your own money)!

What the #%& are real estate syndications, and do they really earn 15-50% returns?

How to Use Fannie Mae & Freddie Mac Loans for Rental Properties

The HomeReady and Home Possible loans don’t allow for non-owner-occupied investment properties. So how can real estate investors take advantage of these outstanding low-down-payment loan programs?

Easy: you live in the property for at least a year. You could live there by yourself as a typical homeowner, then move out after a year and keep the property as a rental. But if you do that, you don’t get to live for free by house hacking.


House Hacking: Low-Down Payment Financing to Live for Free

I love house hacking. In many ways, it’s the perfect way to buy your first rental property with no money down (or at least minimal money down).

Here’s how the traditional house hacking model works: You buy a small multifamily property (2-4 units), move into one of the units, and rent out the other(s).

There are several huge advantages to house hacking. First, you get to use homeowner financing, which is significantly cheaper (lower interest rates, lower closing costs) than rental property financing. Even more importantly, homeowner financing requires a far lower down payment.

Like, for example, a 3% down payment!

Another advantage to house hacking? Your neighboring tenants’ rent payments cover your mortgage. If you do it well, their rental income also covers expenses like repairs, vacancies, property management costs, etc.

In other words, you get to live for free. Hence the name house hacking! (Want more juicy details? Here’s a detailed house hacking case study of how one 20-something with no real estate investing experience lives for free in a duplex.)

One final advantage of house hacking is that it’s easier to manage rental units when you live at the property yourself. Think of it as property management training wheels.

Get creative and look for ways to buy your first rental property with no money down (or at least very little).


House Hacking a Single-Family Home

Don’t like the idea of buying a multifamily property? Don’t sweat it – you can still house hack.

One option is to create an income suite: a separate section of the property that you can rent out, either long-term or short-term as an Airbnb landlord.

Is your property not very “segment-able”? You could rent out rooms to housemates. Or rent out rooms on Airbnb.

Or, for that matter, you could build or add an accessory dwelling unit

Another option? Deni Supplee (the co-founder of SparkRental) found a unique way to house hack her suburban single-family home. As empty nesters, she and her husband Jerry had plenty of space and no one to fill it. They brought in a foreign exchange student, who has not only breathed new life into their home, but the exchange student placement service pays them a hefty monthly stipend. (If you want more information about the service she used, message us using the Chat button at the bottom right and we’ll connect you with them!)


The Live-In Flip

House hacking is a fantastic way to finance and buy your first investment property. But it’s not the only way.

Investing in rental properties isn’t always easy to afford with a standard investment property loan. So, when some real estate investors first start out, with little cash for a down payment, how do they finance their first few properties?

By living in them for a time.

One approach is to move into a property that needs cosmetic updating, spend the next year updating it while you live there, then selling it for a profit and doing it all over again. Or stay for two years, to take advantage of the 121 exclusion (homeowner exclusion) and avoid paying capital gains taxes.

But who says you have to sell it? What if you kept it as a rental property?

The problem with rental property loans is that they typically require at least 20% down. And when you’re first starting out buying investment properties, a 20% down payment can seem unreachable.

But a 3% down payment, through a program like HomeReady or Home Possible? That’s a lot more doable.


Comparing Fannie & Freddie Loan Terms to Landlord Loans

Wondering how house hacking loans through Fannie Mae and Freddie Mac stack up against typical landlord loans?

Here’s a quick breakdown. Keep in mind that for owner-occupied loans through Fannie and Freddie, you have to actually move in for at least a year!

Conventional Mortgage LendersKiavi (formerly LendingHome)ConventusVisioLendingOneRCN CapitalNew SilverLendency
Where to Check RatesTry CredibleKiavi RatesConventusVisio RatesLendingOne RatesRCN Capital RatesNew Silver RatesLendency Rates
Loan to Value (LTV)80-97% owner-occ, 75-80% rentalsUp to 80%Up to 80%Up to 80%Up to 80%Up to 80%Up to 80%Up to 80%
Credit Score580+660+ (no hard credit pull)620+680+680+660+680+ (no hard credit pull)660+
Debt-to-Income Ratio (DTI)28% - 36%No income docs requiredNo income docs requiredNo income docs requiredNo income docs requiredNo income docs requiredNo income docs requiredNo income docs required
Cash Reserve Requirements6-12 mos.' paymentsNone3-6 mos.' payments6 mos.' payments6 mos.' payments9 mos.' payments6 mos.' payments6-12 mos.' payments
Min. Interest Rate4.75-8.25% owner-occ, 6.15-8.9% rentals7.25%+7.375%+7.25%+7.25%+6.825%+7.0%+6.375%+
Repayment Term15 or 30 Years3/1 ARM, 5/1 ARM, 7/1 ARM, 30-year fixed, or interest-only30-year fixed5/1 ARM, 7/1 ARM, or 30-year fixed 5/1 ARM, 7/1 ARM, or 30-year fixed 3/1 ARM, 5/1 ARM, 7/1 ARM, 30-year fixed, or 10-year interest-only30-year fixed5/1 ARM, 7/1 ARM, 10/1 ARM, or 30-year fixed
Time to Funding30-60 Days10-30 Days30-45 Days21-30 Days10-30 Days14-21 Days5 Business Days20-30 Days
Loan Limits$50,000 - $424,100$75,000 - $2M$150,000 - $9 million$75,000 - $2M$75,000 - $2M$50,000 - $2M$100,000 - $2M$55,000 - $2M
Prepayment PenaltiesVaries by lender; as high as 5% within 1 year3% first year, 2% second year, 1% third year, none after 3 years3 Year Stepdown (3-2-1%)5 years typical, 3 years optional80% of 6 months' interest within first 3 years5 years typical, 3 years optional3 or 5 year options 2, 3 or 5 year options
States ServicedAllAL, AR, AZ, CA, CO, CT, DC, FL, GA, IL, IN, KS, KY, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OK, OR, PA, SC, TN, TX, VA, WA, WI & WVAll except: AZ, DC, MN, MT, ND, NV, SD, VT & UTAll Except: AK, DE, ID, MN, ND, NE, NV, OR, RI, SD, UT, VTAll Except: AK, NV, ND, SD & UTAll Except: AK, HI, MN, NV, ND, SD & VTAll Except: AK, AZ, CA, CO, DC, ID, MN, NV, ND, OR, SD, UT & VTAll Except: AK, AZ, CA, ID, MN, NC, ND, NV, OR, RI, SD, TN, UT, VA,VT
Report to Credit Bureaus?YesNoNoNoNoNoNoNo
Where to ApplyTry CredibleKiavi (no hard credit pull)ConventusVisio LendingLendingOneRCN CapitalNew SilverLendency

Conventional Investment Property Loans vs. Homeowner Loans

After extolling the virtues of house hacking, live-in flips, and other techniques for buying investment properties with homeowner financing, what are some of the other options available for investment property loans?

The first and most obvious option is conventional investment property financing. You simply call up your regular mortgage broker and ask them about their investment property loan programs.

Conventional investment property loans have their pros and cons. The biggest advantage? They tend to be priced reasonably.

Disadvantages include a slow, tedious underwriting process, stiff income requirements, and they report on your credit report.

“Brian why is that a problem? I’m not a deadbeat, I’m going to pay the mortgage on time!”

Here’s the thing about conventional investment property lenders, and homeowner lenders, for that matter: they’ll stop lending to you if you have more than a few mortgages on your credit report.

That means you have a ceiling of around three or four mortgages before you’re no longer eligible for conventional investment property financing. This is why people can only pull the old “Borrow an FHA or HomeReady mortgage, move in for a year, then move out and keep it as a rental” trick a few times before it stops working.


Other Options for Rental Property Loans

Luckily, nowadays there are excellent online investment property loans available, crowdfunding loans for investment properties, and more hard money lenders than ever before.

Check out our comparison chart of rental property loans and fix-and-flip loans, to view pricing and lending terms side-by-side.

We’ve found that online-only lenders do a particularly good job with rental property loans. Landlords can borrow a 30-year fixed mortgage, at rates equivalent to (or only slightly higher) than conventional investment property loans.

Real estate investors who specialize in flipping have even more good options. Check out the investment property loan comparison chart for a breakdown of several options.


Are HomeReady & Home Possible Loans Feasible as Investment Property Loans?

Yes, with some caveats.

First, investors must be prepared to move into the property for at least a year. If you’re looking for a straight investment property, you’ll need to look elsewhere (see our investment property loan comparison chart).

Second, buyers’ income must be in the “Goldilocks zone” – high enough to qualify for the loan, but below the local median.

Third, the loans will appear on borrowers’ credit reports. That means you will only be able to borrow a few times from government-backed or conventional lenders before hitting their mortgage loan ceiling.

Read: these Fannie and Freddie loans are not scalable in the long-term for real estate investors.

With all that said, HomeReady and Home Possible loans have some strong perks. One excellent advantage over FHA loans is that they don’t require mortgage insurance for the life of the loan: when the loan balance drops below 80% of the property value, borrowers can apply to have mortgage insurance removed.

Another perk? The low down payment required, between 3-5%. And Home Possible has particularly flexible requirements on where the down payment comes from.

Any investors considering an FHA loan for house hacking or a live-in flip should talk to their loan officer about HomeReady and Home Possible loans to compare the terms. Qualifying borrowers may find lower interest rates, lower down payments, or other advantageous loan terms compared to conventional and FHA loans.

Happy real estate investing!


Ever used a government-backed loan (e.g. FHA) for house hacking or a live-in flip? How did it go? Share your experiences below!



More on Getting Started Buying Rental Properties:

I want to know more about…

FREE Webinar: Open $250K in Credit Lines for Investing

On Wed. 3/23/22 at 2pm & 8pm EST, Deni & Brian are hosting Fund&Grow for a free webinar to show you how to open up to $250,000 in unsecured business credit lines for real estate investing.

Free Background Check

Run a FREE housing & identity check!

Credit, criminal, eviction reports also available.

Want to create passive income?


We’ll email a series of videos in our free course,

to help you start earning income from rentals.

Privacy Policy: Your info will never be shared or sold to a 3rd party. Even if Dr. Evil offers us 1 million dollars 🙂

Rental ROI Ebook

Want to earn more from your rentals?


Download our free Ultimate Guide to Higher ROI and be dazzled by the charming wit, disarming frogs and invaluable tips for higher profits and less work.


Free Mini-Course: Passive Income from 2-4 Unit Multifamilies

Free Mini-Course: Passive Income from 2-4 Unit Multifamilies


Ready to build passive income from small multifamily properties?

Over the next week, we'll email you a free series of videos, so enter your best email and let's get started!

You're in! Check your email to confirm, and you can email us directly at [email protected] with any questions :-)

Free Webinar: Earn 15-50% on Passive Real Estate Syndications

LIVE masterclass on Tues. 10/25 @ 8pm EST

Your seat is reserved! Check your email to confirm.

Ready to Build Passive Income?


We'll email you the "recipe," plus a free mini-course on passive income over the next week, so enter your best email!

P.S. We never share your email, ever.

It's on! Check your email to confirm.

Ready to Build Passive Income?

Ready to Build Passive Income?


We'll email you the course videos over the next week, so enter your best email!

You're in! Check your email to confirm.

Ditch Your Day Job: Free 8-Video Course


Our brand new course on how to reach financial independence and retire early (FIRE) with rental properties is open for one week from Oct. 23-30!

You're in! Check your email for the link, or click here for the 1st video!

Share This