Rental Property Loans: Best Options & Investment Strategies

By the Hemlane team—we help landlords manage over 60,000 rental properties, and trust us, we've seen every financing mistake in the book

Last Tuesday, I got a call from an investor in Atlanta who was about to make a $15,000 mistake.

She'd been approved for a conventional loan on a rental duplex—20% down, 7.5% interest rate, standard stuff. The lender told her she was "all set" and sent over closing documents. She was days away from signing when something made her pause: the monthly payment seemed... high.

When we walked through her numbers together the problem became obvious. At 7.5% her mortgage payment would be $2,650/month. The property generated $3,200 in rent. After property taxes ($350/month), insurance ($180/month) and maintenance reserves (10% of rent = $320/month) she'd cash flow exactly negative $300 per month.

She'd be losing money every single month and she hadn't even factored in vacancies or capital expenditures.

Here is the kicker: she qualified for a DSCR loan at 6.875% just 0.625% lower which would've saved her $125/month and made the deal actually profitable. Her lender never mentioned it because they didn't offer DSCR loans.

Three days later, she closed with a different lender. Same property, different loan type, completely different outcome.

This is why I'm writing this guide. Rental property financing isn't like getting a mortgage for your primary home. The rules are different, the rates are higher, and choosing the wrong loan type can literally mean the difference between profit and loss.

Let me show you what actually matters.

The Brutal Truth About Investment Property Rates in 2025

Let's start with the number that shocks most first-time rental property buyers: as of December 2025, investment property mortgage rates are typically 0.5% to 1% higher than primary residence rates.

Primary residence 30-year fixed: Around 6% APR Investment property 30-year fixed: Around 6.5-7% APR

That percentage point might not sound like much but on a $300,000 loan over 30 years it's about $60,000 in additional interest. Sixty. Thousand. Dollars.

Why do lenders charge more? Because if you plan to rely on rental income from a tenant to contribute to or cover the mortgage payments there's a greater possibility you could default on the loan if your tenant fails to pay rent.

Here's what lenders know (and what you need to internalize). When times get tough financially people prioritize their primary residence payment. The rental property payment? That's the first thing to go. It's a simple survival instinct, and it's why investment property loans carry higher risk—and therefore higher rates.

At Hemlane where we help landlords nationwide manage their properties and finances we see this play out constantly. The investors who succeed are those who understand this reality upfront and structure their deals accordingly.

The Seven Types of Rental Property Loans (And When to Use Each)

Most first-time investors think there's one type of investment property loan. There are at least seven major options each designed for different situations.

1. DSCR Loans (The Investor's Secret Weapon)

DSCR stands for Debt Service Coverage Ratio and it's the loan type that changed everything for real estate investors starting around 2020-2021.

Here's why it's revolutionary: DSCR loans let investors qualify based on how much income they will make from a rental rather than relying on traditional methods such as W-2s and tax returns for the application process.

How it works:

The lender divides your projected rental income by your total housing payment (mortgage + taxes + insurance + HOA). If that number is 1.25 or higher you're golden.

Example:

• Monthly rent: $2500
• Total housing payment: $2000
• DSCR: $2500 ÷ $2000 = 1.25

A DSCR of 1.25 means your rental income is 25% higher than your expenses. This is exactly what lenders want to see.

Who should use DSCR loans:

• Self-employed investors (lenders do not care about your tax returns)
• Investors with multiple properties (no limit on how many properties you can finance)
• Anyone who's maxed out conventional loans (Fannie Mae limits you to 10 financed properties)
• High-income earners who write off lots of business expenses (your tax returns look bad, but your rental income is strong)

Current rates (December 2025)

DSCR loan rates typically range from 6.625% to 7.5%, depending on your credit score, down payment and property cash flow. That's roughly 0.5-1% higher than conventional loans but the flexibility is often worth it.

The catch

You willl typically need 20-25% down, and if your DSCR is below 1.0 (meaning the property doesn't fully cover its own expenses) you will either be declined or charged significantly higher rates.

One investor in Phoenix told me: "I have seven rental properties, all with DSCR loans. My CPA makes my income look terrible on paper because we're maximizing deductions. With conventional loans, I'd be screwed. With DSCR I just bought my eighth property last month."

2. Conventional Loans (The Traditional Route)

Conventional loans are standard mortgages from banks, credit unions or mortgage companies. They follow Fannie Mae and Freddie Mac guidelines, which means they are predictable but they also come with strict rules.

Pros:

• Competitive rates (currently around 6.5 to 7% for investment properties)
• Long loan terms (15 to 30 years) provide payment stability
• Understood by most lenders

Cons:

• Requires 15 to 25% down (20% is standard)
• Strict income verification (W-2s, tax returns and pay stubs)
• Debt-to-income ratio caps (usually 45% or less)
• Limited to 10 financed properties per borrower

Who should use conventional loans

W-2 employees with clean income documentation, strong credit (680+) and fewer than 10 financed properties.

Real-world example

A teacher in North Carolina used conventional financing for her first three rental properties. Clean W-2 income, 740 credit score, 20% down on each property. Worked perfectly—until she tried to buy a fourth property while carrying student loans. Her debt-to-income ratio maxed out and she couldn't qualify. She switched to DSCR loans for properties 4-8.

3. Portfolio Loans (The Flexible Option)

Portfolio loans are held by the lender (usually a local or regional bank) instead of being sold to Fannie Mae or Freddie Mac. This gives them the flexibility to write their own rules.

Pros:

• More flexible qualification requirements
• Can finance multiple properties under one blanket loan
• Lender can customize terms to fit your situation

Cons:

• Interest rates may be 0.5-1% higher than conventional
• Not all lenders offer them
• Terms vary wildly between lenders

Who should use portfolio loans:

Investors who do not fit conventional guidelines but have strong banking relationships. Portfolio loans work especially well if you are buying multiple properties from the same lender.

One investor in Colorado financed four single-family rentals with a single portfolio loan from his local credit union. Combined 25% down payment, one closing and one monthly payment. The rate was 0.75% higher than conventional but the simplicity was worth it to him.

4. Commercial Real Estate Loans (For Bigger Deals)

Once you hit five or more units, you're in commercial territory. Duplexes, triplexes and fourplexes count as residential. A five-unit building? That's commercial.

Pros:

• Designed for large properties with high income potential
• Can finance apartment buildings, mixed-use developments and retail spaces
• Some offer interest-only payments to improve cash flow

Cons:

• Their qualification is stricter (often requires a business plan)
• Larger down payments (20 to 30%)
• Shorter loan terms (5 to 20 years with balloon payments common)
• Higher rates than residential mortgages

Who should use commercial loans:

Experienced investors buying larger multifamily properties or transitioning from residential to commercial real estate.

Commercial loans are a different beast entirely. If you are financing a 12-unit apartment building lenders want to see detailed rent rolls, expense reports and market analysis. It is not just about you anymore. It's about the property as a business.

5. HELOCs and Cash-Out Refinancing (Leverage Your Equity)

If you already own a primary residence with equity you can tap that equity to fund rental property purchases.

HELOC (Home Equity Line of Credit): Works like a credit card. You borrow what you need, when you need it and up to your credit limit. Only pay interest on what you borrow.

Cash-Out Refinance: Replace your existing mortgage with a larger loan and take the difference in cash.

Pros:

• Lower interest rates than hard money or private loans
• Flexible use of funds (down payments, renovations and full purchases)
• No restrictions on property type or income verification for the rental

Cons:

• Uses your primary residence as collateral (you could lose your home)
• If property values drop you could owe more than your home is worth
• HELOC rates are variable and can increase

Who should use HELOCs/cash-out refis:

Investors with significant equity in their primary residence who want access to low-cost capital. Particularly useful for down payments or bridge financing.

Warning from a Nashville investor who learned this the hard way, "I pulled $150K from my primary residence via cash out refi to buy two rental properties. Then 2020 happened, both properties sat vacant for four months and I was suddenly I had to cover three mortgages on drastically reduced income. It nearly bankrupted me. Do not use your home as a piggy bank unless you have serious cash reserves."

6. Hard Money Loans (Fast Cash for Fix-and-Flips)

Hard money loans are short-term loans from private lenders based primarily on the property's value not your creditworthiness.

Pros:

• Fast approval and funding (sometimes within days)
• Flexible qualification (they care about the deal not your credit)
• Perfect for fix-and-flip projects

Cons:

• High interest rates (currently 9 to 15%)
• Short repayment terms (6 to 24 months)
• Large fees and points (2to 5% of loan amount upfront)

Who should use hard money:

Experienced flippers buy distressed properties they plan to renovate and quickly sell or refinance.

In 2025 hard money loan rates often start around 9% and can go up to 12% to 15% for riskier deals.

Hard money is not for beginners. It is expensive and if your project takes longer than expected or the market shifts, you can get underwater fast. One Florida flipper told me he paid $22,000 in interest over nine months on a hard money loan. The deal still worked because he bought at a 30% discount but there is zero margin for error.

7. FHA/VA Loans (The House-Hacking Loophole)

Here is something most people do not realize. You can use an FHA or VA loan to buy a multifamily property (up to a fourplex) as long as you live in one unit.

FHA loan:

• 3.5% down
• Owner must occupy one unit
• Easier credit qualification
• Lower interest rates (it is classified as owner-occupied)

VA loan (for veterans):

• 0% down
• Owner must occupy one unit
• No PMI
• Best rates available

Who should use FHA/VA loans:

First-time investors willing to live in the property while renting out other units ("house hacking"). This is hands-down the best way to start investing with minimal capital.

A veteran in San Antonio bought a fourplex with 0% down using a VA loan. He lived in one unit, rented out three units for $1,200 each ($3,600 total rent) and his total mortgage payment was $2,800. He lived for free and pocketed $800/month while building equity. Two years later, he moved out, bought another fourplex with another VA loan (you can reuse your VA benefits) and kept the first one as a fully rented investment property at the owner-occupied rate.

That is a masterclass in leverage.

What Lenders Actually Look At (And How to Improve Your Chances)

Getting approved for a rental property loan is harder than getting approved for a primary residence mortgage. Here's what actually matters.

Credit Score: The Non-Negotiable

Minimum scores vary by loan type:

• Conventional: 680+ (720+ for best rates)
• DSCR: 660+ (680+ preferred)
• Hard money: 600+ (they care less about credit)
• FHA: 580+ with 3.5% down, 500-579 with 10% down

Though you may be able to get a rental property mortgage with a credit score as low as 640 you'll need a higher credit score to get the lowest possible rate.

Every 20 points of credit score can change your interest rate by 0.25-0.5%. Over a 30-year loan that's thousands of dollars.

Down Payment: Bigger Is Better

Investment property down payments:

• Conventional: 15 to 25% (20% is standard)
• DSCR: 20 to 25%
• Commercial: 20to 30%
• Portfolio: Varies (sometimes as low as 15%)
• Hard money: 10 to 30% (depends on the deal)

Lenders typically require larger down payments for investment properties (15 to 25% compared to 3 to 5% for primary residences).

This is what many investors don't realize. A larger down payment shows your commitment to the investment and reduces the amount you'll need to borrow often translating to better rates and terms.

Cash Reserves: The Safety Net

Though it varies by lender, you'll likely be required to have extensive cash reserves. This can be anywhere from four to eight months' worth of mortgage payments, taxes, insurance and homeowners association fees.

And if you own multiple investment properties, it may be calculated per property, which adds up fast.

Example: You own three rental properties, each with a $2,000/month PITI (principal, interest, taxes and insurance). Lender wants six months reserves per property. You need $36,000 sitting in the bank ($2,000 × 6 × 3) just to qualify for a fourth property.

Debt-to-Income Ratio: The Income Test

For conventional loans, lenders want your total monthly debt payments (including all mortgages, car loans, credit cards and student loans) to be less than 43 to 45% of your gross monthly income.

This is where rental income helps. Lenders typically allow 75% of the future rental income to count toward your qualifying income.

Example:

• Your W-2 income: $6,000/month
• Projected rent: $2,000/month
• Lender counts: $6,000 + ($2,000 × 0.75) = $7,500/month qualifying income

Why only 75%? Because lenders assume 25% vacancy and maintenance expenses. Smart.

The Real Costs Nobody Tells You About

The mortgage payment isn't the only cost. Here's what first time investors often miss:

1. Higher Interest Rates

We covered this but it's okay to repeat. Investment property mortgage rates are typically 0.5% to 1% higher than primary residence rates. On a $300,000 loan 1% higher rate = $60,000 more interest over 30 years.

2. Larger Down Payments

If you are buying a $200,000 rental property with 20% down, that's $40,000 upfront versus $7,000 (3.5%) on an FHA loan for a primary residence. That's $33,000 more capital required.

3. Closing Costs

Expect 2-5% of purchase price in closing costs. On a $200,000 property, that's $4,000-$10,000.

4. Property Inspections and Appraisals

Investment property appraisals often cost more ($500-$800) because appraisers factor in rental income potential, not just comparable sales.

5. Insurance

Landlord insurance costs 15-25% more than homeowner insurance. Budget accordingly.

6. Cash Reserves

Remember those cash reserves lenders require? Even after closing, you should maintain 6-12 months of expenses per property for vacancies, repairs, and emergencies.

How to Choose the Right Loan (The Decision Tree)

Here's my simplified framework for choosing a rental property loan:

If you're a W-2 employee buying your first rental property: → Start with conventional financing (best rates, predictable terms)

If you're self-employed or have "messy" income on tax returns: → DSCR loan (qualifies based on rental income, not your W-2)

If you already own 10+ financed properties: → DSCR loan (no property limit) or portfolio loan

If you're buying a property that needs major renovation: → Hard money loan (fast funding, flexible terms) or cash-out refi to fund the purchase

If you're buying your first investment property and willing to live there: → FHA or VA loan (lowest down payment, best rates)

If you're buying 5+ units: → Commercial loan (only option for properties with 5+ units)

If you have equity in your primary residence: → Consider HELOC or cash-out refi for down payment or full purchase

The Biggest Mistakes I See Investors Make

After working with thousands of landlords through Hemlane, these are the mistakes that kill deals:

Mistake #1: Choosing a Loan Based Only on Interest Rate

That investor in Atlanta I mentioned at the beginning almost did this. She was so focused on rate that she ignored loan type. Sometimes paying 0.5% more for a DSCR loan is worth it if it means you can actually qualify and grow your portfolio.

Mistake #2: Not Shopping Multiple Lenders

The surest way to find the lender with the most competitive investment or rental property mortgage rate is to apply with multiple lenders.

Rates can vary by 0.5-1% between lenders. On a $300,000 loan, that's $500-$1,000/year in savings. Apply to 3-5 lenders and compare Loan Estimates side by side.

Mistake #3: Overestimating Rental Income

Lenders use 75% of projected rent for a reason. Don't base your numbers on "best case scenario" rent. Use actual market comps, factor in vacancies, and be conservative.

Mistake #4: Ignoring Cash Reserves

I've seen investors drain their savings for down payments, then face a $5,000 HVAC replacement three months later with no money to cover it. Keep reserves.

Mistake #5: Using Home Equity Without a Safety Net

HELOCs and cash-out refis put your primary residence at risk. If you're going this route, make absolutely certain you have rock-solid reserves and can cover payments even if the rental sits vacant for six months.

How Hemlane Makes This Easier

Full disclosure: I work for Hemlane, so obviously I think our platform helps with this stuff. But here's specifically why it matters for financing:

Financial Tracking

Lenders want to see organized income and expense records. Hemlane automatically tracks rent collection, maintenance expenses, and generates financial reports that lenders actually want to see.

Rent Collection Documentation

When you apply for a DSCR loan, lenders want proof of rental income. Hemlane's automated rent collection provides a clear paper trail showing consistent rental income—exactly what underwriters need.

Property Performance Metrics

Before you buy your next property, Hemlane's analytics show you exactly how your current properties are performing. Are you actually cash flowing? What's your real ROI? This data helps you make better purchase decisions.

Professional Presentation

When you're trying to impress a lender for a portfolio loan or commercial loan, showing up with Hemlane-generated reports makes you look like a professional investor, not someone managing properties in a spreadsheet.

Whether you use Hemlane or another system, having organized financial documentation dramatically improves your ability to secure better financing terms.

The 2025 Investment Property Loan Market: What's Happening Right Now

The rental property loan market is weird right now. Here's what you need to know:

Interest Rates Are Sticky

Despite the Federal Reserve cutting rates in late 2024, investor residential purchases in the second quarter of 2025 dropped to the lowest level for that time of year since 2020.

Why? Because rates are still elevated. Many investors are sitting on the sidelines waiting for better borrowing costs.

DSCR Loans Are Hot

The current market for DSCR loans is hot. More lenders are offering them, and investors are embracing the flexibility. If you're self-employed or have multiple properties, DSCR loans are probably your best option in 2025.

Commercial Lending Is Tight

Banks are being more cautious with commercial loans after some high-profile real estate challenges in 2023-2024. If you're buying larger multifamily, expect stricter scrutiny and tougher terms.

Creative Financing Is Back

With rates elevated, creative strategies are making a comeback: seller financing, lease options, subject-to deals, and private money partnerships. If traditional financing doesn't work, there are alternatives.

Frequently Asked Questions

What type of loan is best for an investment property?

It depends entirely on your situation. W-2 employees with good credit should start with conventional financing. Self-employed investors or those with multiple properties should explore DSCR loans. First-time investors willing to house-hack should use FHA/VA loans. There's no universal "best"—only "best for you."

Is it hard to get a loan for an investment property?

Yes, harder than getting a primary residence mortgage. You'll need higher credit scores (typically 680+), larger down payments (15-30%), and stronger cash reserves. But if you have solid credit and documented income (or strong rental income for DSCR loans), it's absolutely doable.

What is the 2% rule for investment property?

The 2% rule says monthly rent should equal at least 2% of the purchase price. Example: $200,000 property should rent for $4,000/month. It's a quick screening tool but rarely achievable in most markets. The 1% rule ($2,000/month for a $200,000 property) is more realistic in 2025.

Can I put less than 20% down on an investment property?

Sometimes. Conventional loans may accept 15% down. FHA loans (if you're house-hacking) require only 3.5%. VA loans require 0% if you're a veteran occupying one unit. But most traditional investment property loans require 20-25% down.

How can I get 100% financing for an investment property?

Very difficult, but possible through:

• House hacking with VA loan (0% down, but you must occupy)
• Seller financing (negotiate with seller to finance purchase)
• HELOC/cash-out refi on your primary residence for the full purchase price
• Private money partnerships (partner provides capital, you provide expertise)

What type of investment property is most profitable?

Depends on market and strategy. Short-term rentals (Airbnb) can generate high income in tourist areas. Multifamily properties provide stability and scale. Fix-and-flips can generate quick profits. There's no universal answer—profitability depends on your market, skills, and capital.

Final Thoughts: Getting Your Financing Right

That investor in Atlanta—the one who almost signed on the wrong loan—called me last week. Her duplex has been rented for four months now, cash flowing $300/month after all expenses. Over 30 years, choosing the right loan type will save her approximately $45,000 in interest.

That's the difference between success and failure in rental property investing. Not the property itself (though that matters), but how you finance it.

The investors who succeed in 2025 are those who:

• Understand the different loan types and match them to their situation
• Shop multiple lenders and compare actual terms, not just interest rates
• Factor in all costs (not just the mortgage payment)
• Maintain healthy cash reserves even after closing
• Get pre-approved before making offers
• Work with lenders who specialize in investment property financing

Real estate investing isn't about finding the perfect property—it's about finding a good property and structuring the financing to make the numbers work.

At Hemlane, we've built tools specifically to help landlords manage the financial side of rental property ownership more effectively. From automated rent collection to expense tracking to investor-grade financial reporting, we handle the details so you can focus on growing your portfolio.

Want to see how professional property management tools can help you secure better financing and run more profitable rentals? Start with Hemlane's free landlord software or reach out to learn about our full-service options.

Because the right tools—combined with the right financing—make all the difference.

Legal Disclaimer: This article provides general information about rental property financing as of 2025. Interest rates, loan terms, and lending criteria change frequently and vary by lender. This content does not constitute financial advice. Consult with qualified mortgage professionals and financial advisors before making investment decisions. Hemlane is not a lender and does not provide financial or legal advice.

Essential Resources for Investment Property Financing

Current Rate Information:

• Bankrate - Investment Property Rates
• NerdWallet - Investment Property Mortgage Rates
• The Mortgage Reports - Investment Property Loans

Loan Options & Education:

• OfferMarket - DSCR Loan Rates
• Baselane - Investment Property Mortgage Guide
• Fannie Mae - Investment Property Guidelines

Government Resources:

• FHA Loan Information
• VA Loan Benefits
• IRS - Rental Property Tax Deductions