Types of Home Loans for an Investment Property

Buying an investment property is a different ballgame than purchasing a primary home. It comes with potentially higher stakes, stricter rules, and different loan options depending on your strategy. 

Maybe you’re planning to rent it out long term. Maybe you’re eyeing a flip. Or maybe you’re planning to list it as a short-term rental. Whatever your plan, choosing the right home loan for investment properties is key to protecting your budget and maximizing returns. 

In this guide, we’ll break down the most common types of home loans for investment properties, what it takes to qualify, and how to borrow smarter — whether you’re tapping into equity from your current home or financing a brand-new purchase. 

Key takeaways 

• Home loans for investment properties have different rules. Expect stricter credit, income, and down payment requirements than you’d face when financing a primary residence. 
• You might finance an investment property using conventional loans, home equity products, debt service coverage ratio (DSCR) loans, or, in some cases, government-backed loans. 
• If you have equity in your current home, funding an investment property purchase with a home equity loan or line of credit may make sense. 
• The best loan depends on your financial picture and how you plan to use the property.  
• Getting preapproved through AmeriSave’s digital-first process gives you buying power and expert support every step of the way. 

What is an investment property loan? 

Home loans for investment properties are mortgages used to finance properties you don’t plan to live in as your primary residence. These might be single-family rentals, duplexes, short-term rentals, or fix-and-flip properties. If the goal is income or resale (vs. moving in), it’s considered an investment. 

And that means tougher rules. Compared to primary home loans, you’re looking at bigger down payments, stricter credit requirements, and often higher interest rates. But don’t let that deter you. With the right planning and the right lender, you can confidently navigate your mortgage loan options.  

Types of home loans for investment properties 

You’ve got options for financing an investment property. You might tap into your home’s equity, take out a new mortgage, or look into a loan designed specifically for investors. 

Let’s walk through the most common investment property loans and how each one works. 

Conventional loan 

A conventional loan is one of the most common ways to finance an investment property. These loans aren’t backed by the government, which means lenders set their own (often stricter) approval criteria. 

To qualify, you’ll typically need: 

• A down payment between 15% and 25% 
• A credit score of 620 or higher 
• A debt-to-income (DTI) ratio of under 43% 

If your finances are strong, conventional loans offer competitive rates and more flexible terms than other loans to buy a home. Just keep in mind that because it’s an investment property, the requirements are tougher than for a primary residence. 

Home equity loan or home equity line of credit (HELOC) 

Already own a home with built-up equity? You may not need a brand-new mortgage to fund your next purchase. Using a HELOC or home equity loan for an investment property lets you tap into the value of your current home to cover the down payment. And, in rare cases, you may even be able to buy the property outright (depending on the available equity). 

Here’s how these two types of home equity products compare: 

• Home equity loan: A lump sum with fixed payments and interest 
• HELOC: A flexible, revolving credit line you can draw from as needed 

These options are popular with homeowners who want to keep their existing mortgage in place — no need to refinance. 

But keep in mind: Your current home is the collateral, so it’s important to borrow wisely. 

Cash-out refinance 

If mortgage rates are favorable, a cash-out refinance can be a smart way to unlock funds for your next property. With this option, you refinance your existing mortgage for a higher value than your current balance and take the difference out in cash — provided you’ve built enough equity over time. 

You could then use the cash for: 

• An investment property down payment 
• Renovation or repair costs 
• Covering closing costs on a new purchase 

Keep in mind that this replaces your current mortgage with a new one, so compare available interest rates and loan fees against your long-term financial plans before moving forward. You’ll still undergo the underwriting and approval process as you would with a brand-new loan. 

DSCR loans 

Debt Service Coverage Ratio (DSCR) loans are geared toward real estate investors. Instead of qualifying based on your personal income, lenders look at the property’s rental income potential. 

Here’s how it works: 

• Lenders calculate the DSCR by dividing the property’s potential monthly rental income by the expected monthly mortgage payment.  
• For example, if a property generates $2,500 in monthly rent and the expected mortgage payment is $2,000, the DSCR is 1.25 ($2,500 ÷ $2,000 = 1.25). In this scenario, the income more than covers the cost. 
• A DSCR of 1.0 or higher usually indicates that the property can cover its own costs, making approval more likely. 

These loans are ideal for investors who may not meet the strict income requirements of conventional financing but have a property that can generate steady cash flow. 

Just be aware that these investment property loans may come with slightly higher interest rates and require larger down payments. 

Government-backed loans 

Federal Housing Administration (FHA) and Veterans Affairs (VA) loans are primarily for owner-occupied properties and not investment properties. But, under the right circumstances, they can still play a role in building your investment portfolio. 

Here’s how: 

• FHA loans require you to live in the home for at least one year. But if you buy a multi-unit home (e.g., duplex, triplex, or fourplex), you could live in one unit and rent out the others. This is a strategy called house hacking. 
• VA loans also require the property to be your primary residence, but like FHA loans, they can work for multi-unit investments as long as you occupy one of them. 

These loans offer benefits like lower down payments and more flexible credit requirements, making them a powerful investment tool if you plan to occupy part of the home yourself. 

Preparing for investment property loan requirements 

Getting a home loan for an investment property means navigating more hurdles than you would for a primary residence, but it’s entirely manageable with the right prep. That might mean working to improve your credit score or saving up for a bigger down payment. 

Here are the key requirements lenders typically look for on investment loans: 

• Higher credit score: Most lenders want to see a credit score of at least 620 to 700. A stronger score can help you qualify for better rates. 
• Larger down payment: Expect to put down 15% to 25%, depending on the loan type. Investment properties carry more risk, so lenders typically want to see more skin in the game. 
• Low debt-to-income ratio (DTI): Keeping your DTI under 43% (or lower in some cases) shows lenders you can manage additional debt comfortably. 
• Cash reserves: Some lenders may require you to have enough savings to cover up to six months of mortgage payments, just in case the property doesn’t immediately generate income. 
• Rental income potential: If you’re applying for a DSCR loan, lenders will want to see projected rental income that supports the mortgage payment. 

Being financially prepared not only improves your chances of approval but also puts you in a better position to negotiate terms and close quickly when the right property comes along. 

How to choose the right investment property loan 

There’s no one-size-fits-all solution when it comes to investment property loans. The best loan for you depends on the type of property you’re targeting and your investment goals. 

Here are a few questions you should ask yourself to help narrow your options: 

• Do you have equity in your current home? If so, a home equity loan or HELOC could give you fast access to funds without touching your current mortgage. 
• Looking for stability? Conventional loans, FHA, and home equity loans often come with fixed rates and predictable payments — ideal if you’re planning to hold the property for the long haul. 
• Is the property itself expected to generate strong rental income? In this scenario, a DSCR loan could help you qualify even if your personal income doesn’t meet conventional lending standards. 
• Are you house-hacking a multi-unit home? If you plan to use the property as both an investment and your primary residence, a government-backed loan like FHA or VA could offer lower barriers to entry (if you meet the loan qualifications). 

The key is aligning your financing strategy with your investment plan. If you’re unsure which product is right for you, a Loan Expert at AmeriSave can walk you through your options. 

How to start the loan process today 

If you’re serious about buying an investment property, the first step is understanding your financing options. At AmeriSave, the loan application and preapproval process is quick easy, and built around your goals. 

Apply for your AmeriSave investment home loan today in three easy steps: 

1. Work with us to choose the right home loan for your investment property based on your financial situation and strategy. 
2. Get your mortgage preapproval from AmeriSave so you can shop with confidence and make competitive offers. 
3. Connect with a Loan Expert anytime for questions, guidance, or support. We’re here to help you structure a loan that maximizes your buying power and helps you along every step of your investing journey. 

Get started today! 

Frequently asked questions 

Is it difficult to get an investment property loan? 

It can be more challenging than a standard home loan, but it’s absolutely doable with the right preparation. Lenders typically require higher credit scores, bigger down payments, and strong financial reserves. If your personal income doesn’t meet conventional standards, alternatives like DSCR loans may help you qualify based on the property’s rental potential instead. 

What is the best loan for an investment property? 

The “best” loan depends on your situation. If you have strong credit and cash, a conventional loan may offer the most favorable terms. If you have a lot of equity, a home equity loan for investment property purchases can give you access to funding without a second mortgage. If the property is income-producing, a DSCR loan might be the most strategic fit.