How to Get a Loan for a Rental Property: Everything You Should Know

How to Get a Loan for a Rental Property: Everything You Should Know

Key Takeaways

  • Purpose: Loans for single-family rental properties, not owner-occupied homes.
  • Eligibility: Requires turn-key, tenant-ready properties.
  • Sources: Available from private lenders and mortgage brokers.
  • Vacancy Terms: Suitable for properties with high vacancy rates like vacation homes.
  • Loan Mechanics: Similar to home loans but with higher down payments, stricter debt-to-income ratios, and higher credit score requirements.
  • Costs and Advantages: Higher interest rates than conventional mortgages; no private mortgage insurance needed.
  • Insurance and Income: Specific landlord insurance required; rental income from other properties can count towards qualification.
  • Loan Types: Includes Conventional, Private Money, FHA Multi-Unit, VA Multi-Unit, Portfolio, Blanket, HELOC/Home Equity, Seller Financing, and DSCR Loans.
  • Qualification Criteria: Generally requires a 20-25% down payment, 640+ credit score, proof of income, and liquid reserves.
  • Application Requirements: Loan application, credit report, income proof, bank statements, property details, insurance, down payment proof, and ID.

What is a Rental Property Loan?

A rental property loan is a first lien mortgage, prioritized for repayment in case of default. It’s specifically for single-family residential properties rented out, not owner-occupied.

Key aspects include:

  • Eligibility: The property must be a turn-key rental, ready for tenants. This is important whether you’re getting a loan for a long-term rental or exploring how to get a loan for a short-term rental like a vacation home.
  • Loan Sources: These loans are often provided by private lenders or mortgage brokers, which are crucial for landlords considering how to get a rental property loan.
  • Vacancy Terms: Vacation homes or Airbnb properties can be vacant 80% to 90% of the time with a rental property loan.

How Do Rental Property Loans Work?

Rental property loans, much like conventional commercial real estate loans, involve lenders setting the repayment timeline, monthly payment amount, and interest rate.

If you’ve previously secured a mortgage for your primary residence, you’ll find rental property loans share many similarities. You still have to fill out an application and must be prepared to have your income, assets, and credit score verified.

However, getting a loan for a rental property often has higher entry barriers than standard mortgages. This includes:

  • Higher Down Payments: Expect to pay 20% or more.
  • Increased Cash Reserves: Lenders may require six months of reserves for each mortgage you hold.
  • Debt-to-Income Ratio Limits: Ideally at or below 36%.
  • Credit Score Requirements: A score of 640 or higher often secures better loan terms.

Getting a loan for rental property financing will generally cost more than conventional mortgages, with interest rates 0.5% to 0.875% higher, even for those with good to excellent credit.

A notable advantage for landlords is private mortgage insurance doesn’t apply to rental property loans. This insurance is common in residential mortgages with a low down payment, adding around 0.5% to 1% to the mortgage cost.

As a landlord, you’ll need specific insurance for your rental property. Additionally, you can qualify for loans based on rental income from other properties. Lenders often credit a portion of this income, making it easier to qualify alongside your regular income.

What are the Different Types of Rental Property Loans?

An investment property owner can qualify for several different types of rental property loans. Below are nine rental property loan types, along with their pros and cons:

Conventional Loans (a.k.a Conforming Loans)

  • Offered by conventional lenders (banks, credit unions, and mortgage brokers)
  • Government-backed, guaranteed by Fannie Mae and Freddie Mac (must meet Government-Sponsored Enterprise guidelines)
  • Eligible for the lowest interest rates with a good credit score
  • Down payments between 15% and 25%
  • It’s possible to get up to 10 mortgages (though for most lenders, there’s a maximum limit of four)

Required Documents:

  • Tax Returns: 2-3 years of tax returns to verify income and deductions.
  • Pay Stubs/W-2s: 30 days of pay stubs and W2 forms from the past 1-2 years.
  • Bank Statements: 2-3 months of statements showing your account balance.
  • Credit Report: Give lenders permission to check your credit history.
  • Proof of Assets: Includes investments and other property.
  • Employment Verification: Employer information for the last 2 years.
  • Photo ID and Social Security Number: Government-issued identification.


  • Access to competitive rates
  • Familiar structure for those with experience in residential mortgages


  • Stricter credit and down payment requirements
  • Limit on the number of mortgages one can hold

Private Money Loans

  • Offered by private lenders or groups that specifically provide loans to real estate investors
  • Experienced real estate lenders pool their capital and offer financing to real estate investors
  • Loan terms and fees customized to the real estate investment experience of the borrower and the deal potential (e.g., cash flow)
  • Often do not require Income Verification to qualify but rather rely on rental property cash flow (rental income)
  • Lenders may take equity and get a cut of the profits of the rental property project in exchange for lower fees and interest rates
  • If the rental property does well as an investment, private lenders may finance future rental property investments

Required Documents:

  • Promissory Note: A promise to pay the loan amount.
  • Deed of Trust: Establishes a lien on the property as security for the loan.
  • Warranty Deed: Transfers property ownership.


  • Flexible terms tailored to the investment
  • Potential for lower upfront costs


  • Higher interest rates reflecting the increased risk
  • Potential equity sharing in the property’s profits

FHA Multi-Unit Financing

  • A loan for a multi-family dwelling backed by the Federal Housing Administration
  • Offered by mortgage brokers and traditional lenders like banks and credit unions
  • Good for new construction and rent-ready purchases or properties that need significant rehabilitation
  • Down payment and credit score requirements lower than conventional loans (as low as 3.5% down with a credit score of 580 or higher)
  • Existing rental income can be used to help qualify
  • Must live in one of the units for at least a year

Required Documents:

  • Employment Verification: Last 2 years of tax returns, W-2s, and 1099 statements, plus 2 months of pay stubs (3 years of documents for self-employed).
  • Financial Assets: Bank statements for all accounts from the past 3 months, including retirement and investment accounts.
  • Credit Information: Recent bills and statements for credit accounts, landlord details or 12 months of rent checks, utility bills for credit supplementation, bankruptcy/discharge papers if applicable, and evidence of payments for co-signed loans.
  • Personal Documents: Driver’s license, SSN, relevant divorce/alimony/child support documents, Green Card or Work Permit if applicable, and homeownership papers.
  • Refinancing/Rental Property: Current loan note and deed, property tax bill, homeowners insurance policy, current mortgage payment coupon, and rental agreements for multi-unit properties.


  • Lower entry barriers
  • Suitable for properties needing rehabilitation


  • Requirement to live in one of the units
  • Primarily for multi-unit properties

VA Multi-Unit Financing

  • Multi-family loan backed by the U.S. Department of Veterans Affairs
  • Offered by mortgage brokers and traditional lenders like banks and credit unions
  • Available to active duty military service members and veterans (including eligible spouses)
  • No minimum down payment or credit score
  • Purchase up to seven units
  • Borrowers must live in one of the units

Required Documents:

  • Identification: A driver’s license or other government-issued ID.
  • Military Service Documentation: For veterans, a copy of your DD-214; for Reserve or Guard members, points statements.
  • Active Duty Documentation: A statement of service if you are an active duty borrower.
  • Income Verification: Pay stubs and W-2 forms from the past two years.
  • Financial Statements: Recent bank statements.
  • Disability Documentation: If applicable, disability award letters.


  • Exceptional terms with no down payment
  • Broader property options


  • Exclusive to military-affiliated borrowers
  • Occupancy requirement

Portfolio Loans

  • Finance multiple single-family or small multi-family properties from the same lender
  • Offered by mortgage brokers or private lenders that may have a “group discount” for multiple loans
  • Loan terms can be customized to fit the needs of the borrower (e.g., down payment, credit score, monthly payment, fees, and interest rate)
  • Down payments are usually around 20%
  • Comes with higher fees and prepayment penalties because it’s easier to qualify for with multiple properties
  • May feature a balloon payment where the entire balance is due at the end of the loan

Required Documents:

  • Credit Score: Allow lenders to check your credit score (scores below 580 can still qualify).
  • Proof of Income: Recent W2s, bank statements, or other documents to verify income (including seasonable or variable earnings).
  • Debt-to-Income Ratio: Can have higher ratios compared to conventional loans.
  • Property Details: Information on properties being financed, including fixer-uppers or multiple properties.
  • Loan Terms: Specifics on interest rates, down payments, and repayment schedules.
  • Banking Relationship: Evidence of existing relationships with a lending institution.


  • Streamlines financing for multiple properties
  • Flexible lending requirements compared to conventional loans


  • Higher fees and potential for significant balloon payment
  • Riskier for less experienced investors

Blanket Loans

  • Finance multiple rental properties under a single loan
  • Applicable to any type of income property
  • Offered by mortgage brokers and private lenders
  • Down payments range from 25% to 60%
  • Must have at least six months of cash reserves
  • Loan-to-value requirements are typically between 75% and 85%
  • Loan terms vary from lender to lender and can be customized to meet borrower’s needs
  • Properties within the loan are cross-centralized (each property is collateral for the others)
  • Borrowers can ask for a release clause that allows selling one or more of the properties without refinancing the others

Required Documents:

  • Personal Financials: Credit reports, tax returns, and bank statements.
  • Business Financials: Credit reports, tax returns, and bank statements for businesses.
  • Property Information: Addresses, details, photographs, purchase dates.
  • Property Value and Financing: Purchase price, market value, renovation costs, existing financing, and business plan or proposal.
  • Property Finances: Information on renters, vacancy rates, operating expenses, fees, and net operating income.


  • Ideal for financing several properties
  • Flexibility in property management


  • Complex loan structure
  • Risk if one property underperforms

HELOC and Home Equity Loans

  • Home Equity Line of Credit (HELOC) and Home Equity Loans pull accumulated equity from one rental property to fund the down payment of another (waterfall technique)
  • HELOC works like a credit card that can be drawn from at any time and repaid with monthly payments
  • Home Equity Loan is a second mortgage that provides funds in a lump sum
  • Lenders set borrowing limits on both loans at 75% to 80% of the rental property equity
  • Interest rates and fees are higher compared to long-term, cash-out financing on conventional loans
  • Quality source of funds when needed

Required Documents:

  • Equity in Home: Must have 15% to 20% equity. LTV ratio is considered, and CLTV ratio should be no higher than 85%-90%.
  • Credit Score: Lenders require a mid-to-high 600s score (700 or higher for better interest rates).
  • Income Verification: W-2s, pay stubs, tax returns, Social Security benefit letters, and other relevant income statements.
  • Payment History: Lenders will review payment history to assess reliability and risk.
  • Debt-to-Income Ratio: DTI should be no higher than 43% to 50%.


  • Immediate access to capital
  • Leverages existing property investments


  • Higher interest rates
  • Risk of over-leveraging property equity

Seller Financing

  • Sellers who own property outright with no debt can act as a lender
  • Good option for buyers investing in rental property on a down cycle or a property that has difficulty qualifying for conventional financing
  • Loan terms can be completely customized according to the needs of the buyer and seller
  • Can be used to defer capital gains over the life of the loan as an alternative to a 1031 exchange
  • Sellers can generate interest income and earn a monthly mortgage payment instead of a lump sum
  • Standard underwriting requirements like credit checks and a minimum down payment

Required Documents:

  • Promissory Note: Detailing loan terms and repayment.
  • Deed of Trust: Secures the property as collateral.
  • Warranty Deed: Transfers property ownership from seller to buyer.


  • Highly flexible terms
  • Potential tax benefits for the seller


  • Reliant on seller’s willingness to finance
  • May have less standardized terms

Debt Service Coverage Ratio (DSCR) Loan

  • Mortgage loans secured by residential real estate turnkey properties
  • Strictly used for business purposes and underwritten primarily based on the property
  • Focuses on the rental property’s income rather than personal income
  • Ideal for investors prioritizing quick deal closure
  • Simplified documentation and no cash reserve requirements

Required Documents:

  • Application: The initial form to start the loan process.
  • Credit Authorization: Permission for lenders to check credit history.
  • Bank Statements: 2 months of bank statements to prove liquid asset reserves.
  • Property Insurance: Property insurance for damage (flood insurance may be required).
  • Leases: Documentation of rental agreements if the property is rented out.
  • Short-term Rental History: If applicable, show income from short-term rentals.


  • Quick approvals
  • Less requirements on personal financials


  • Higher interest rates due to perceived risk
  • Strict evaluation of property’s income-generating potential


Each of these rental property loan types offers unique benefits and challenges. Landlords should carefully consider their investment strategy, financial situation, and the property’s specific characteristics when deciding how to get a loan for a rental property. Whether it’s getting a mortgage for a rental property or securing loans based on rental income, a thorough understanding of these options is key to making informed financing decisions.

How to Qualify for a Rental Property Loan?

To qualify for a rental property loan, you generally need to meet the following criteria:

  • Down Payment: A 20-25% down payment for a single-family home or 30% or higher for a rental property with 2-4 units. Some programs like Fannie Mae/Freddie Mac may offer options with a 10% down payment.
  • Credit Score: A minimum score of 640, though higher scores may yield better interest rates and terms.
  • Interest Rates: Be prepared to pay 1% to 3% more in interest compared to traditional owner-occupied home loans.
  • Loan-to-Value Ratio: A ratio lower than 80% is preferable, indicating a larger down payment relative to the loan amount.
  • Proof of Income: At least two years of income documentation is required.
  • Liquid Reserves: A minimum of six months’ worth of liquid reserves, though this can vary by lender.

Required Documents:

To apply for a rental property loan, you typically need to provide the following documents:

  • Loan Application: The formal application for the loan.
  • Credit Report Authorization: Allow lenders to check your credit report.
  • Proof of Income: Includes W-2s and tax returns for the past 2 years.
  • Bank Statements: To demonstrate financial stability and liquid assets.
  • Property Documentation: Including current leases and rental history.
  • Property Insurance: Evidence of insurance on the rental property.
  • Down Payment Proof: Documentation of the funds for the down payment.
  • Identification Documents: Must be government-issued, like a driver’s license or passport.

The Bottom Line: Rental Property Loans

When you don’t have all the money to finance a rental property free and clear, a rental property loan can be a great option.

You can customize the terms of many rental property loans to fit your specific needs, but you will need to put down at least 20-25% and have at least six months of cash on hand, plus a credit score of at least 640 with a lower loan-to-value ratio than a residential owner-occupier loan.

If you don’t know where to start, Baselane will search 50,000+ rental property loans from top lenders to match you with the best financing options available.


Is a rental property loan different from a regular loan?

Yes. A rental property loan is a first lien mortgage loan for a single-family or mult-family residential property that is occupied by a tenant or tenants and not the owner. Since the property is not occupied by the owner, the risk is higher for the lender than a standard mortgage on an owner-occupied property. As a result, the requirements needed to qualify for a rental property loan are more stringent than they are for a typical residential mortgage. With rental property loans, you need at least 20-25% down, a credit score of at least 640 and at least six months of cash reserves with a low loan-to-value ratio. There are other rental property loans backed by the Federal Housing Administration, Veterans Affairs and Fannie Mae or Freddie Mac where the requirements are less stringent, but otherwise, rental property loans are harder to qualify for.

Are rental property loans tax deductible?

No. Rental property loans are not tax deductible per se. However, you can deduct expenses associated with having a rental property including mortgage interest, interest on a Home Equity Line of Credit, insurance premiums, property taxes and depreciation. You can also deduct expenses for repairs and maintenance, as well as additions that improve the property over the long-term such as a deck, a pool, a gym or some other capital improvement. Track your rental property income and expenses using Baselane.

Are rental property loans risky?

Yes and no. Rental property loans are more risky for the lender because the owner is not occupying the residence. As a result, the borrowing requirements for a rental property loan are more stringent than a traditional owner-occupier residential mortgage, which lessens the risk of default and means the qualifying borrowers are theoretically more financially stable.

However, beyond conventional rental property loans, there are rental property loan structures that are more risky. These include loans with seller financing and private money loans, where the terms can vary more widely according to the needs of the borrower and the lender. Also, mortgage insurance does not cover rental property loans, so if the borrower does default, the lender is less protected than with a traditional residential mortgage.

There are rental property structures that are backed by the U.S. Government and therefore, less risky. These include small business loans and those multi-family residential property loans backed by the Federal Housing Administration and Veterans Affairs, which offer less stringent borrowing terms for a rental property loan.

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Saad started his career as a Certified Public Accountant (CPA) working for a top-tier accounting firm. He was responsible for helping audit alternative investment funds. He later worked at a hedge fund where he was responsible for preparing financial statements and implementing new technology. He also ran a successful private tax practice for five years.

After completing his MBA at Duke, Saad joined The Boston Consulting Group to do management consulting. At BCG his experience spanned several industries and growth projects across Pharma, Retail, and Technology companies. His passion for democratizing finances led him to Plaid, a fintech, where he worked with large Banks and Financial Institutions to make finances and money easier for all.
How to Get a Loan for a Rental Property: Everything You Should Know
How to Get a Loan for a Rental Property: Everything You Should Know