How to Get a Loan for Rental Property Investment in Florida

Just like there is plenty of fish in the sea, there are many types of rental property loans for Florida real estate. Understanding the ins and outs of each loan is the best way to keep more money in your pockets (and your portfolio).

Fannie Mae and Freddie Mac Loans

What this loan is for: Purchasing a primary residence, second home, or investment property for long and short-term rentals.

• Minimum down payment: 3%

• Maximum term: 30 years

• Payment terms: Monthly principle + interest + insurance + property taxes

• Maximum loan amount: $1,244,850

• Minimum experience: None

• Minimum credit score: 620

Fannie Mae and Freddie Mac are federal government-sponsored enterprises (GSEs) that buy and guarantee mortgages issued by lenders. These loans can be fixed or adjustable over 15, 20, or 30 years. Loans that meet the requirements set by these companies are also referred to as conventional or conforming loans.

Fannie Mae and Freddie Mac loan requirements:

• Credit score of 620 (fixed rate) or 640 (variable rate)

• Down payment starting at 3% (some restrictions apply)

• Cash reserves for two to six months of mortgage payments

• Debt-to-income ratio of 36% or less (up to 45% in some cases)

• Private mortgage insurance (PMI) (0.1%-2% of the loan amount)

The Federal Housing Finance Agency (FHFA) sets conforming loan limits by county. You can borrow up to $647,200 for single-family homes and $1,244,850 for multi-family properties.

Most lenders require a minimum down payment of 5-20%. Fannie Mae and Freddie Mac offer programs with down payments as low as 3%. These options are only available to first-time homebuyers purchasing a primary residence. You can rent the home for half the year so long as it complies with the 183-day rule.

FHA Loans

What this loan is for: Purchasing a primary residence with up to 4 units to be used as a rental property after one year.

• Minimum down payment: 3.5%

• Maximum term: 30 years

• Payment terms: Monthly principle + interest + insurance + property taxes

• Maximum loan amount: $1,867,275

• Minimum experience: None

• Minimum credit score: 500

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. FHA mortgage terms are generally 15 or 30 years with fixed interest rates. Since banks aren’t bearing the risk of default, it’s easier for applicants with low income and limited cash flow to qualify for an FHA loan.

FHA loan requirements:

• Credit score of 580

• Downpayment of 3.5% (10% for credit scores between 500 and 579)

• Debt-to-income ratio less than 43%

• Payment-to-income ratio no more than 31%

• Loan-to-value ratio lower than 96.5%

• Upfront MIP payment (1.75% of the loan amount)

• Annual MIP (0.45% to 1.05% of the loan amount)

• Pass an FHA appraisal

Florida loan limits on a single-family home with an FHA mortgage are set at $420,680 in low-cost areas (the “floor”) and $970,000 in high-cost counties (the “ceiling”). Limits on multi-unit properties can reach $1,867,275. Florida FHA loan rental rules require the purchased property to be your primary residence for at least one year. You can live in one unit and rent the others to start earning rental income right away.

Private Money Loans

What this loan is for: Short-term loans to purchase or refinance an investment property for resale or renting.

• Minimum down payment: 25% (average)

• Maximum term: 12 months (flexible)

• Payment terms: Monthly installments or lump sum

• Maximum loan amount: 100% financing

• Minimum experience: None

• Minimum credit score: None

Private money loans are directly funded by an individual (called a private money lender) instead of a bank or traditional mortgage broker. These loans can be useful if you don’t have the credit or equity for conventional Florida rental loans.

Private money loan benefits:

• Flexible terms: You can negotiate loan terms for a flexible repayment schedule (typically 6-12 months), waived fees, or lower interest rates.

• Quick approval: Private money loans can close in days compared to weeks or months for conventional loans.

• Diverse properties: Eligible properties include single and multi-family homes (1-8 units), townhouses, condos, SFR portfolio rentals (up to 200 units), and commercial or mixed-use buildings.

Considering private loans carry more risk for lenders, down payments are typically between 25% and 30%. Interest rates also tend to be higher than a traditional loan but cannot exceed 18% for private loans in Florida. Lenders will secure the loan with a lien to foreclose the property if you default on payments.

Hard Money Loans

What this loan is for: Short-term financing to purchase and flip distressed properties for a profit.

Minimum down payment: 25% (average)

Maximum term: 2 years (flexible)

Payment terms: Monthly interest + principle (installments or balloon payment)

Maximum loan amount: 75% loan-to-value (LTV) ratio

Minimum experience: None

Minimum credit score: None

Hard money loans offer short-term financing backed by a “hard” asset, such as real estate. These loans are issued by a lending company or investor group to bypass credit checks and strict requirements that come with conventional mortgages.

Hard money loan benefits:

• Fewer requirements: Approval is based on property value and cash flow rather than your income and credit history.

• More liquidity: Hard money loans make it easier to leverage your own cash to stay more liquid and spread out the risk.

• No penalties: There are no fees to pay all or part of the loan early like traditional mortgages.

Hard money loans make the most sense to cover fix and flip loans for reselling Florida real estate within a short period of time (often one year). Since the property is used as collateral, loan-to-value (LTV) ratios are on the low end of 50-75%. This means you will need enough cash reserves to make a down payment of 25% or more.

Commercial Real Estate Loans

What this loan is for: Financing commercial spaces or residential investment properties with more than 5 units.

• Minimum down payment: 10%

• Maximum term: 30 years

• Payment terms: Monthly interest + principle (installments or balloon payment)

• Minimum experience: Registered business owner for two years

• Minimum credit score: 680

Commercial real estate (CRE) loans are issued to business entities to purchase or refinance commercial spaces like offices and apartment complexes or residential investment properties. Lenders secure these loan options with a lien and usually require the property to be 51% owner-occupied.

Commercial loans in Florida:

• Conventional Loans: Bank loans with terms ranging from 5-30 years and interest rates as low as 3%.

• SBA Loans: Government-backed loans up to $5 million over a maximum term of 25 years.

• Permanent Loans: First mortgage on a commercial property with a minimum term of five years and some amortization.

• Blanket Loans: Financing for multiple properties rolled into one loan with a single lender.

• Bridge Loans: Short-term loans up to 90% of the purchase price over 6-36 months.

While some commercial loans can last 30 years, terms generally range between 5-10 years with an extended amortization period. For example, a 30-year amortization period on a $1 million commercial loan at 7% over seven years works out to $6,653 per month, followed by a balloon payment of $918,127.