Investment Properties: Frequently Asked Questions About What to Expect

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 investment properties. 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:

What loan-to-value (LTV), credit score, and income is required for an investment property loan?

  • LTV – Typically, for a 1-unit, investment property purchase, a 15% down payment is required (an LTV of 85%).  For a 2-4 unit investment property purchase, a 25% down payment is required for an LTV of 75 percent.
  • Credit Score – The minimum credit score needed (for Quicken Loans) is at least a 620.
  • Income – The required income varies depending on the amount of the house payment and other debt.  The total debt-to-income ratio (including the house payment) generally cannot exceed 45%.

Is it true that I must have two years of landlord experience?  What if this is my first time?

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.

Can I buy with partners that I am not related to?   Is there a maximum number of partners allowed?

Yes you can buy with partners who aren’t your relatives.  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.

Can I buy in an LLC?

No, the general rule is that homes may only be purchased by individuals, not LLCs or other business structures.

Are gift funds allowed?

No gifted funds are allowed.  The minimum 20-25% down payment for an investment property must be 100% from the borrower’s own money.

How much is needed in reserves?

While some lenders require investors to show four months 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.

Are the requirements different if I want to buy a condominium?

There are some added hurdles in the loan process if you’re considering a condominium.  First, 51% of the complex needs to be either owner-occupied or a second home, since the agencies will not allow you to buy a share of a complex that is solely for investment. Next, the condo association must prove that it’s in good financial standing or that it has enough in reserves if 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.

How is the rental income counted?

For new investment property purchases, income will be calculated based on the lesser of the rental income stated on the lease agreement or the appraiser’s opinion of what can be expected for a specific market. Once that’s established, the lender will reduce that amount by another 25% to determine qualifying income.  This provides the lender with a conservative amount that factors in potential vacancy periods.

What mortgage rates do I qualify for?

Keep in mind each mortgage lender may tweak their qualifying standards so be sure to ask about their guidelines. 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 90 Comments

  1. 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.

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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.

  7. Are you looking for a loan to start up a business, or for any reason kindly contact Godstym Loan Firm today via email:godstymloanfirm @ hotmail.com

  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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