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Craftsman style house

While many people consider owning a primary residence a feather in their cap, there are folks out there who want to take the next step and own an investment property as well.

If you’re a novice, it’s likely you have questions. If you’ve done it before, it doesn’t hurt to review some investment property basics and sharpen your property-owner skills.

Below, we address some frequently asked questions about buying an investment property. Once you’ve read the list, if you still have any questions please ask them in the comment section, and we’ll be happy to answer them:

How Much Down Payment Do You Need?

When you decide to buy an investment property, the down payment is going to be an important factor in how much profit you make each month. The more cash you’re able to put down on the home, the lower your monthly payment is going to be. 

There are several factors that determine what your down payment needs to be. Some of these include your income, credit score, debt-to-income ratio, and if it’s going to be an owner-occupied investment property. 

If you’re not planning on living in the property, a 20% down payment is usually the minimum. This would give the property a loan-to-value (LTV) of 80%. Occasionally you can put down just 15% (85% LTV) if you have a credit score over 720. If you’re planning on buying a multi-family investment property, it’s likely you will need a down payment of 25% (75% LTV).

What Credit Score Do You Need to Buy an Investment Property?

The minimum credit score needed to finance an investment property through Quicken Loans is 620. However, the interest rate will start to increase as your credit score falls below 740. At that point you can choose to either pay the higher rate or pay for points to lower the interest rate you’ll pay.

What Are the Income and Debt-to-Income (DTI) Requirements?

When purchasing an investment property it’s best to have a low DTI. This will help ensure the lowest rates possible. Ideally, your DTI will stay at or below 36%. If you start to creep past that number, lenders can start looking at you as a risky borrower. That means you will start paying a higher interest rate. If your DTI climbs up to 45%, it’s likely you will be denied for a mortgage.

How Much Should You Have in Reserves?

While some lenders require investors to show four month’s worth of principal, interest, taxes, insurance and homeowners association dues, some lenders require more. Quicken Loans requires six months of house payments (including taxes and insurance) plus an additional two months of house payments in reserves for every non-primary residence that a person owns.

Do You Have to Have Previous Landlord Experience?

Freddie Mac and Fannie Mae differ on this rule.Freddie requires a borrower buying an investment property to show two years of landlord experience, through tax returns, in order to count projected rent as income. Fannie Mae says it’s still possible to buy an investment property and use a portion of income to qualify without having a two-year history. Quicken Loans does not impose the two-year rule on the majority of investment property purchase transactions.

Are There Rules About Real Estate Investing Partners?

Real estate investing can be a lot of work. Unless you’re purchasing a turnkey property, you might need to oversee renovations once the property is purchased. And unless you’re planning to hire a property manager, you will be responsible for placing tenants in the home and for all maintenance required.

It might make sense to bring on a real estate partner to split the work. Plus, they will also be able to cover a portion of tinvestment costs. But are there any restrictions on who can be a partner and how many partners you can have?

There are no restrictions on who can be your real estate partner. You could choose a relative or a close friend. Quicken Loans places a cap of four borrowers on a loan application, but there is no limit to the number of people on the title.

Are There any Specific Requirements for Investing in a Condo?

There are some added hurdles in the loan process if you’re considering a condominium. First, many lenders will require a minimum 51% of the complex to be either owner-occupied or a second home. It’s also important to check the HOA bylaws before putting in an offer on a condo. Some buildings will require you to occupy the unit for a year before renting it out. Plus, some buildings forbid rentals altogether.

The condo association must also prove that it’s in good finance standing and that it has enough money in reserves if any repairs are needed. In addition, a statement from the condo association is required to show no lawsuits exist among current owners and/or the association.

What Mortgage Products and Terms are Available for Investment Properties?

Because lenders are taking on additional risks when they lend to investors, there are different lending rules involved. Higher risk means higher interest rates and down payment requirements. But what about the actual mortgage products available to investors? Here are a few of the options to consider.

Conventional Loans

These tend to be the most basic type of loan. They are not backed by the government, instead they are eligible to be purchased by Fannie Mae and Freddie Mac because they meet certain requirements.

FHA Loans and VA Loans

Both FHA and VA loans are available to investors but with one stipulation. Investors will usually need to purchase a multi-unit property and occupy one of the units. VA loans are only available on primary residences, so as long as the investor plans to live in one of the units, a VA loan can be used.

Other Loan Options

If you currently own a home, you can choose to take out either a home equity loan or a home equity line of credit. This would allow you to use the equity in your current home to cover the down payment on the new investment property. Quicken Loans currently does not offer home equity lines of credit but homeowners could refinance and take cash out of their primary residence if they have enough equity to do so. Another option for financing an investment property is to take out a generic personal loan.

Keep in mind each mortgage lender may tweak their qualifying standards so be sure to ask about their guidelines. As we mentioned earlier, mortgage rates for investment properties are typically higher than that of primary residences and second homes. Both Fannie and Freddie have adjustments that could affect your principal and interest payments depending on your loan amount and other factors.

Since most online information does not take into account rental property adjustments, it’s best to speak directly to a Quicken Loans mortgage banker to obtain an accurate interest rate and mortgage payment.

We hope this info helps investors wishing to take advantage of the great opportunities and deals available in today’s real estate market. Still have questions? Leave us a comment and we’ll be in touch!

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This Post Has 91 Comments

  1. I am looking at purchasing a second residence for my daughter to live in. Is this considered an investment property or second residence?

    1. Hi Thomas:

      It’s considered an investment property because you won’t be living in it at all. We can help you with these. If you’re interested in going over your options, you can either call one of our Home Loan Experts at (888) 980-6716 or get started online. Hope this helps!

  2. Can you lend on a non owner in oaklahome if the Brokervis not licensed in that state? Also does quicken loans. Have to be licensed in that state? I have heard there are states that neither the Lender or the Broker does not need to be kicensed if it is a Non Owner Occupied. Your assistance would be greatly appreciated.

    Steve

    1. Hi Steven:

      We do work with brokers, but because they’re independent, I personally am not as familiar with the laws surrounding brokers in different states. I can tell you that we have Home Loan Experts licensed in all 50 states and DC, so helping you with a loan wouldn’t be an issue. If it’s an investment property you’re interested in, you can certainly get in touch with us by filling out this form or calling (888) 980-6716. We would be happy to work with you. Hope this helps!

    1. Hi John:

      With the exception of Alaska and Iowa where the minimum loan amount for certain options is $25,000, we don’t really have a specific minimum loan amount. It comes down to whether the closing costs makes sense for you. I’m going to recommend you speak with one of our home loan experts at (888) 980-6716.

      Thanks,
      Kevin

      1. As I fill out online application, it asks for purchase price of investment property. The minimum is 50,000 – 60,000?

        So is 50k minimum? Or should I still talk to a mortgage specialist?

        1. You can still talk to someone at (888) 980-6716. It might be set up that way online, because as I said, it’s a matter of whether the closing costs work. But we may have other options for you including the opportunity for a personal loan. It’s worth talking to someone.

  3. As I understand, you can’t use a gift for a downpayment on an investment property. How about using HELOC money that’s under my name for downpayment?

    1. Hi Erik:

      I’m going to suggest you talk to one of our Home Loan Experts to make sure you get the red information regarding this. You can get in touch with them at (888) 980-6716 and they can go over any options you have as far as funds to close.

      Thanks,
      Kevin

  4. I’m interested in using an FHA loan on a 4-unit property as my primary residence. It’s not exactly an investment property but I can’t find any information on this from quicken. It seems like other lenders offer this as an option but quicken does not. FHA is a federal program so it seems like the requirements would be consistent across lenders. Does Quicken offer FHA loans on multi-unit properties? And if so, where can I sign up?

    1. Hi John:

      We’re happy to hear you think of us. Although FHA is a federal program, lenders do have the ability to pick the number of units they’re willing to lend on. For FHA, we have a two-unit limit. However, we do offer up to four unit primary properties on conventional and VA loans. If you are interested, you can give us a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  5. We have a loan with QL now. We have house w/ 8 acres. My mother-in-law is down sizing from a 2 story house and building a small 1 story house. She would like to buy an acres from us. Can we sale her an acre to her, so she can build her small house? Thank you.

    1. I’m going to have someone reach out and make sure you get the right information. The value of your home and the land are collateral for your mortgage. We’ll make sure you get the right advice on this.

      Thanks,
      Kevin Graham

  6. Will you guys still not lend on a rental property in an LLC? I’m looking to refi an established short-term rental property if the rate is good. By established I mean operating for 13+years.

    1. Hi Beth:

      We can’t loan to an LLC because if anything were to happen, there’s really no recourse for us. I’m sorry. Thanks for reaching out.

      Thanks,
      Kevin Graham

  7. To qualify as an investment property, does it have to be a traditional stick-built home? One property I’m looking at is a mobile home.

  8. Hi- I have two rental SFH properties with a cash flow of $625/month. The gross rent covers my two mortgages; how is the DTI ratio calculated here? Does my $625/month of cash flow helps increase my income (hence, helps decrease the DTI ratio)? I work full-time for an employer and receive a salary.

    Here are my numbers:
    Rental #1: Rent is $1400 and mortgage loan is $950
    Rental #2: Rent is $850 and mortgage loan is $675

    1. Hi Darwin:

      If you can prove you receive the rent consistently, it would help your DTI ratio. It does increase cash flow.

      Thanks,
      Kevin Graham

  9. Hi I am planning to buy a multifamily in investment property an I know I need 20% down payment, what is your requirements to get this money from your company?

    Thanks..

    1. For a multi-family investment property, you’re looking at a minimum down payment of 25%. The debt-to-income (DTI) ratio will vary depending on whether you’re being approved by Fannie Mae or Freddie Mac. One of our Home Loan Experts could give you more detail if you give us a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  10. I already have a loan through Quicken for my primary residence which I used my VA for but am wanting to purchase a small home in FL for my elderly mother to reside. Would this be considered an investment property? Also, does QL provide small home loans (homes less than 100k)? I have a good credit score (above 660) but am unsure what my debt to income % is, can you advise a way to figure that out prior to me getting my hopes up and applying?
    V/r,
    Christine

    1. Hi Christine:

      Those are all great questions and I’m going to try to answer them one at a time for you.

      1. It will be considered an investment property unless you plan to live there for part of the year. It could be considered a second home if you didn’t plan to let your mother stay there alone for more than 180 days per year. Beyond that limit, it’s an investment property.
      2. We have no set loan minimum. It gets harder to do loans under about $30,000 because of state regulations, but we absolutely do loans for under $100,000.
      3. For this purpose, I’m going to recommend you check out QLCredit. This service allows you to pull your credit report for free and get a look at both your report and score. When you set up an account, you have the option of manually inputting your income. If you do this, the service will calculate your debt-to-income (DTI) ratio based on the items listed on your credit report compared to your income.

      If at the end of all this you decide this is something you want to do, you can get in touch with one of our Home Loan Experts by filling out this form or calling (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  11. I have an opportunity to purchase a property from a family member. The property appraisers at 135,000 +, but the purchase price is only 80,000 for me. Will I still have to come up with 20% down of the 80,000, or is that taken care of with the excess 55,000 of apraised value?

    1. What you’re referring to is called a gift of equity where the purchase price is discounted and that can be used toward your down payment. Unfortunately, you can’t do this with investment properties, so you would have to come up with 20% of whatever the purchase price is.

      Thanks,
      Kevin Graham

    1. Hi Ben:

      Unfortunately, Quicken Loans doesn’t offer construction loans at this time. I’m sorry.

      Thanks,
      Kevin Graham

  12. Looking to buy our fourth investment home. First three are paid For. So guessing from the conversations above, we would be looking at 15% down? How many years ? (I know some things are based on credit score). Does the reserves requirement apply for our paid for homes?

    1. You would be looking at a minimum of 15% down. The term of the mortgage would be up to you. As far as reserves, I’m going to recommend you talk to one of our Home Loan Experts to go over the details. You can get in touch with them by filling out this form or calling (888) 980-6716. Hope this helps!

  13. We are considering purchasing a single family residence as an investment property. Most of our income is tax-exempt (VA compensation and Social Security). Do you “gross this up” for an investment property loan, similar to what is typically done for a primary residence loan?

    1. Hi Nigel:

      In most cases, we do gross up as long as the loan isn’t through the VA itself, which wouldn’t be a problem because they don’t do investment properties for VA. I’m going to recommend you talk to one of our Home Loan Experts. You can get in touch with them by calling (888) 980-6716. Have a great day!

      Thanks,
      Kevin Graham

  14. Hi,
    I would like to purchase an income property or a multi family home to use as income (I’m not sure if it’s one and the same). But someone told me that I have to have a Property Management or Real Estate License, and/or some kind of landlord experience, is this true?

    Shanille

    1. Hi Shanille:

      We don’t require that from a mortgage perspective. Certain municipalities may have their own rules and regulations around the management of investment or multi-family properties. For that, you may have to check local and/or state law. Hope this helps!

      Thanks,
      Kevin Graham

  15. I have a residence (with a loan) and 3 investment properties. I want to buy a 4th investment property. How would I calculate whether I’d qualify or not?

    1. Hi, Lenny!

      You’ll need to speak to one of our home loan experts to determine what you qualify for. Give us a call at (888) 635-1576.

      Have a great day!

      Kollin Currie

  16. I currently have 6 properties mortgaged through Freddie. I want to purchase and finance another one. I know that I can only finance 6 through Freddie, so any subsequent purchases would need to go portfolio. My question is, since I am crossing the maximum amount of financed properties, can my current Freddie loans stay with Freddie our would those have to move out of the program also?

    Thanks!

    1. Hi Corey:

      I don’t actually know the answer to that question, so I’m going to make sure I can get this to someone that can give you more guidance. Thanks for reaching out!

      Kevin Graham

    1. Hi John:

      The only state we have a minimum loan amount for is Alaska. The minimum there is $25,000. Other than that, it just is up to the individual client whether the cost of the loan makes sense for you. You can check out your options by filling out this form or give us a call at 888-728-4702.

      Thanks,
      Kevin Graham

  17. What is the term of the loan? The local banks will do 75% LTV but they will only finance for 20 years and I’d prefer 30 years. I need to refinance a couple of single family rent houses I received in a divorce which are on 30 year mortgages with about 27 years remaining on the loans. Also, what types of resources do you allow in the calculation of the Reserves on hand?

    1. Hi Stephanie:

      Good news! We have programs to match those LTV options and you can do a 30 year term if you choose. As far as reserves, there are a number of different types of assets you can use. If you want to go over specific options, I recommend you talk to one of our Home Loan Experts by filling out this form or calling 888-728-4702.

      Thanks,
      Kevin Graham

  18. In the no gift funds allowed it says the minimum 20 to 25% down payment must be 100% from the borrowers money. Is 20-25% the minimum or 15%? Most banks require 20% so just trying to clarify I understand there are different factors.

    1. Hi again Scott:

      A 15% minimum is based on a fixed rate loan for a one-unit investment property with a 720 credit score. That can go up based on your credit and other factors.

    1. Hi Scott:

      This seems conflicting because the requirements are different depending on a number of factors including your credit score, the number of units you’re looking to purchase and whether the loan you’re looking to get is a fixed or adjustable rate. The best way to find out the answer for your particular situation is to talk to one of our Home Loan Experts by filling out this form or call (888) 728-4702.

      Thanks,
      Kevin Graham

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