Cheat Sheet: Mortgage Rates on Rental Properties

Owner-Occupied Multifamily Loans (House Hacking)

• • Finished basements or lofts which can be rented out separately
  • Additional dwelling units on a property (for example, guest houses)
  • Multi-bedroomed homes where you can rent out extra bedrooms to tenants

• • 15-Year Fixed Interest: 1.75% – 3.63%
  • 30-Year Fixed Interest: 2.69% – 4.50%

• • Lowest possible interest rates for investment property loans
  • Lowest possible down payment for loans for investment property

• • Not scalable: most lenders only allow four mortgage loans on your credit report
  • Your tenants will live with or near you

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Free Masterclass: Financial Independence in 5 Years with Rental Properties

Conventional Rental Property Mortgages

Most new real estate investors think first of conventional mortgages, when brainstorming loans for investment properties. You probably worked with one when you bought your own home, so you instinctively call up the same mortgage lender.

But these lenders limit the number of mortgages allowed on your credit report. They typically stop lending to you once you have four mortgages reporting on your credit. 

That makes conventional loans for investment properties a good fit for your first rental property or two, but not scalable after that. 

Expect a down payment requirement in the 20-30% range for conventional loans for investment properties.

Today’s Conventional Rental Property Mortgage Rates: 

• • 15-Year Fixed-Rate Loan: 2.63% – 4.49%
  • 30-Year Fixed-Rate Loan: 3.63% – 5.75%

Check Mortgage Interest Rates At: Credible or Loan Depot 

Pros: 

• • Lower interest: often lower investment property mortgage rates than portfolio lenders

Cons: 

• • Not scalable: most lenders only allow four mortgage loans on your credit report
  • Conventional real estate investor loans are reported to credit bureaus, and too many mortgages on your credit report will wreck your credit
  • They usually don’t allow mortgage loans to LLCs and other legal entities
  • Minimum credit score: most types of loan require a score of at least 620, often 660 or higher
  • Lenders verify your personal income tax returns and check your debt-to-income ratio
  • Slow to settle: minimum 30 days, typically
  • Lots of paperwork and headaches

Portfolio & Hard Money Loans

With conventional loans for investment properties capped at around four properties, where else can you get financing?

Portfolio lenders don’t sell your loan immediately after closing, the way that conventional lenders do. Instead, they keep the loans within their own portfolios (hence the name).

Most also offer short-term purchase-rehab loans — hard money loans — for buying and renovating fixer-uppers. So investors using the BRRRR strategy can often refinance their hard money loan into a long-term portfolio loan, with the same lender. 

Portfolio lenders offer affordable and scalable real estate investor loans. As collateral-based lenders, they’re more interested in putting the property under the microscope than you as the borrower. Often they don’t even require income documentation. 

Still, your credit score matters. The better your credit, the lower your interest rate and down payment, and the more lenders will consider you at all. While you can still potentially get an investment property loan with bad credit, start working on improving your credit for more options and cheaper loans.

In general, portfolio lenders require similar down payments as conventional lenders, in the 20-30% range. 

As a final note, some community banks and credit unions also offer portfolio loans for investment properties. Try calling around if you want to compare pricing with the online lenders below.

Today’s Mortgage for Rental Property Rates: 

• • Adjustable Rate Mortgages (ARMs): 3.6% – 7.5%
  • 30-Year Fixed Interest Loans: 3.9% – 8.9%
  • Short-Term Fix & Flip Loans: 6.5% – 14%

Check Investment Property Mortgage Rates At: Kiavi, Visio, LendingOne, and Patch of Land

Pros: 

• • Scalable: no limit on the number of mortgages
  • Don’t report to the credit bureaus
  • Allow loans to LLCs and other legal entities 
  • Fast: many can settle within 10-21 days
  • No income documentation required, for many lenders
  • Allow purchase-rehab loans

Cons: 

• • Sometimes more expensive than conventional mortgages (although they now offer competitive rates)
  • Decent credit required: most require a score of at least 620, sometimes 680

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Want to compare investment property loans?

What short-term fix-and-flip loan options are available nowadays?

How about long-term rental property loans?

We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

Private Loan for a Investment Property

As you gain experience as a landlord and establish a track record of success, people you know might want to get on your rental investment gravy train. Private loans from individuals offer an infinite source of funding for seasoned property investors.

These loans from friends and family gives you ultimate flexibility. You negotiate the terms directly with the lender, from points and fees to interest rates to the loan term. Investment property owners may pay higher interest rates, but you may also avoid origination points and junk fees at closing. While that doesn’t improve your monthly cash flow, it still reduces your total borrowing costs. 

If they know and trust you, they may not even pull your credit report. And they likely won’t ask for income documentation either. 

They don’t report on your credit, and you can scale private loans indefinitely.

But if you default, you risk damaging your personal relationships and credibility.

Private Loan Interest Rates: Negotiated between you and your lender.

Pros: 

• • Scalable: no limit on borrowing
  • Don’t report to the credit bureaus
  • Potentially no upfront loan fees or points added to closing costs
  • Allow loans to LLCs and other legal entities 
  • Fast: you can potentially settle immediately
  • No credit requirements
  • No income documentation required
  • Flexible loan term

Cons: 

• • You need to establish a track record of success in your real estate investments before borrowing money from individuals
  • Potential for damaging your credibility and personal relationships

Seller Financing (Owner Financing)

When you borrow money privately, it doesn’t have to be from a friend, family member, or anyone else you know well. Why not borrow from the seller?

While they may not have thought of the idea on their own, many sellers warm to the idea of owner financing after you explain it to them in full. They hold the promissory note, and you make monthly mortgage payments to them on loan terms you negotiate.

Like other types of private financing, everything is negotiable. Many sellers don’t want to hold the note for the next 30 years, so offer them a balloon mortgage. With a balloon loan, you negotiate a earlier deadline for paying off the remaining loan balance. 

Imagine the seller inherits a property outright from a family member but can’t afford to renovate the property. Instead of paying taxes and local fees for a vacant property they can’t live in or rent out, they provide you with owner financing and turn the property into a source of income.

You negotiate a 6% interest rate, with the loan amortized over 30 years, and a five year balloon payment. So you make monthly payments as if it were a 30-year fixed mortgage at 6%, but by the end of five years you need to either sell it or refinance it to pay the owner the rest of their balance in full. 

Private Loan Interest Rates: Negotiated between you and your lender.

Pros: 

• • Scalable: no limit on borrowing
  • Don’t report to the credit bureaus
  • Allow loans to LLCs and other legal entities 
  • Fast: you can potentially settle immediately
  • No credit requirements
  • No income documentation required
  • Flexible loan term

Cons: 

• • Not always available: many sellers aren’t open to owner financing

Final Thoughts

Getting a loan for an investment property can be an overwhelming and tricky business. Novice  real estate investors often don’t know where to start.

House hacking is an excellent springboard into rental property investing. You qualify for a primary residence mortgage, with its low interest rate and high loan-to-value ratio (LTV). But you can still buy a multifamily property, and only have to live there for a year. 

Conventional mortgages also offer low mortgage rates on rental properties. But with strict caps on the number of mortgages on your credit report, these rental property loans aren’t scalable. Once you hit four mortgages, you have to look elsewhere.

If you’re serious about growing your portfolio, you’ll have to get creative in finding loans for investment properties. Consider online portfolio lenders, private lenders, and seller financing, not just traditional mortgages. 

Or better yet, get creative with these clever ways to cover a down payment.♦

What are you seeing among interest rates for investment property loans? Any questions about loan for investment property rates? We’d love to hear your thoughts on loan options below!

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About the Author

Yvonne Reilly is a landlord, property investor and solopreneur, passionate about helping people become financially independent and realizing their FIRE dreams. As a freelance writer, editor and digital marketer, she also helps small businesses connect with their audience and build traction. You can find out more about Yvonne on her website.

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