Investor BlogsInvestment Property Loan Providers: What Are Your Best Options? by Nasser Mansur April 2, 2018February 16, 2019 by Nasser Mansur April 2, 2018February 16, 2019What are your options for obtaining an investment property loan for a rental property?If you’re considering purchasing an investment property to start generating profits from investing in real estate, then your first step should be to consider your options when it comes to investment property loan providers.Most real estate investors rely on an investment property loan or mortgage to finance their purchase. However, there are numerous types of mortgages that real estate investors can choose from. So, how do you determine the best investment property loan provider to finance your purchase?First, let’s take a look at some of the general aspects of an investment property loan, such as the rates and costs as well as the qualification process.Related: Buying an Investment Property: Cash or Mortgage?Investment Property Loan – Conforming MortgagesA conforming mortgage is an investment property loan that real estate investors obtain to finance the purchase of residential real estate, or properties with 4 housing units or less.Conforming mortgages typically have better rates and longer terms than other types of loans, making them very affordable on a monthly basis, which in turn makes them a great option for investing in rental properties.Conforming mortgages can be obtained from national banks, online mortgage providers, and other lenders who specialize in working with real estate investors. Additionally, conforming mortgages generally have fixed rates and the longest terms of all investment property loans.It should be noted, however, that conforming loans do not work with fixer-uppers. If you’re considering a fixer-upper investment in real estate, then you should look into rehab loans for financing the purchase and the renovation of an investment property.Note: To learn more about all aspects of real estate investing, continue reading our blog.Investment Property Loan Rates and CostsIf you’re obtaining a mortgage in your personal name, conforming mortgages will typically have similar rates and costs regardless of the lender. However, if you’re investing as a business entity, then you can expect some higher rates and costs than when borrowing under your personal name.The typical investment property loan rates and costs are:Interest Rates: 3-6.5% fixed (6.5-12% for business entities)Loan Points, Origination Fees, and Closing Costs: 1-2% of the loan amountAdditionally, most lenders will charge you an additional 5% if you pay off the loan in the first year, 4% if you pay it off in the second year, etc. No penalty will incur if you pay off the mortgage 5 years after obtaining it.Investment Property Loan Qualifications and RequirementsConforming mortgages, similar to other types of loans, abide by the Fannie Mae rules and regulations. The Fannie Mae strict standardization for obtaining an investment property loan includes the following requirements:Credit Score: 620-680+Down Payment: 20%-25%Debt to Income Ratio (DTI): 35%-50%Debt Service Coverage Ratio (DSCR): 2+Cash Reserves: 6+ months per propertyWhat Are the Best Conforming Mortgage Providers for Obtaining an Investment Property Loan?So, now that you have a general overview of conforming mortgages, their rates, and their requirements, let’s take a look at some of the best options when it comes to investment property loan providers that you can use for purchasing an investment or rental property in the US.Note: To learn about your options for signing up for our services, click here.Online Mortgage LendersOnline mortgage lenders are similar to traditional mortgage lenders, except they will save you the time and effort by handling the entire process from the comfort of your own home.In addition to saving you the trouble of going to the bank to apply for the mortgage, online lenders will also handle the entire process much quicker than traditional banks, with some online lenders skipping the DTI or income requirements altogether.Online mortgage lenders are an excellent choice for prime borrowers with available funds to cover the required 20% down payment. Also, due to the higher flexibility on DTI and income requirements, online mortgage lenders are a good choice for real estate investors who do not qualify for a traditional loan or do not want to go through the hassle of the extended application.Online mortgage lenders are an excellent choice for real estate investors who are:Looking for a more streamlined application processBorrowing as an individual and not as a business entityLooking for a mortgage provider who is willing to work with them no matter where their next investment property will beDo not want to go to the bank during business hoursStats and Requirements for Online Mortgage LendersLoan to Value (LTV): 75%-85%Down Payment: 20%+Credit Score: 620+DTI: N/ADSCR: 1.3+Cash Reserve Requirements: 1 month per propertyInterest Rates: 4.7%Loan Points: 1-2 (depending on borrower’s qualification)Closing Costs: Depending on borrower’s qualificationRepayment Term: 30 yearsTime to Funding: 3-4 weeksLoan Amounts: $45,000-$2,000,000Prepayment Penalties: Depending on borrower’s qualificationInvestor-Only LendersInvestor-only lenders are the go-to option for financing your investment as a business entity.Typically, investor-only lenders will only deal with investment businesses, so you can’t use them if you’re investing as an individual. This, however, means that you will have an easier application process, and it will be easier for your business to qualify if you’re applying for an investment property loan from these lenders.Investor-only lenders have a limiting factor, however, in that you can’t get more than 4 loans. Moreover, these lenders also offer fix-and-flip loans as well as conventional 30-year mortgages for rental properties.Also Read: The 6 Hidden Costs of Owning a Rental PropertyInvestor-only lenders are an excellent choice for real estate investors who:Plan on investing in rental properties as a legal/business entity (such as an LLC)Plan to diversify their investment in property types other than just rentals (fix-and-flips or multi-family)Have a portfolio that has grown beyond 4 mortgaged propertiesStats and Requirements for Investor-Only LendersLoan to Value (LTV): Maximum of 80%Down Payment: 20%+Credit Score: 620+DTI: N/ADSCR: N/ACash Reserve Requirements: 6 months per propertyInterest Rates: 6.5%-12%Loan Points: 1-2 (depending on borrower’s qualification)Closing Costs: Minimum of $2,500Repayment Term: 3-30 yearsTime to Funding: 3-4 weeksLoan Amounts: $75,000Prepayment Penalties: 80% of 6-month interest within first 3 yearsTraditional Mortgage LendersIf none of the two options mentioned above seems suitable for you, then perhaps you should just go with the option of traditional mortgage lenders such as national and regional banks, or credit unions.These traditional mortgage lenders will typically offer several other services which can be essential for your investment.Traditional mortgage lenders are the right choice for real estate investors who have enough funds to cover the down payment, which is typically 20% or more. However, what attracts most real estate investors to these lenders are the accessibility, affordability, and reputation of the national banks which provide these investment property loan types.Also Read: What Are the Best Ways to Make Money in Commercial Real Estate for Rent?Traditional mortgage lenders are an excellent choice for real estate investors who:Borrow as an individual and not a business entityWant a lender who is familiar with the local area and the local real estate marketWant a lender who has an understanding of the rental market in the areaWant a lender who is familiar with them personallyStats and Requirements for Traditional Mortgage LendersLoan to Value (LTV): 75%-85%Down Payment: 20%+Credit Score: 630+DTI: 35%-45%DSCR: 1.2+Cash Reserve Requirements: 6-12 months per propertyInterest Rates: 3%-4.5%Loan Points: 0.5-1.5Closing Costs: Depending on borrower’s qualificationRepayment Term: 15 or 30 yearsTime to Funding: 30+ daysLoan Amounts: $50,000-$424,100Prepayment Penalties: Depending on the lender; as high as 5% within 1 yearBottom LineNo matter what type of real estate investor you are, if you’re looking for a suitable investment property loan provider, you can find it. Before settling in on any investment property loan provider, make sure to seek the advice of a financial expert to help you determine the best mortgage loan provider for your investment, based on your personal preferences and investment plan.Finally, if you’re still struggling to find the perfect investment property to purchase, head over to Mashvisor and start searching your city or neighborhood of choice to gain real estate insights and analytics that can help you determine the optimal rental property for you. Start Your Investment Property Search! START FREE TRIAL Start Your Investment Property Search! START FREE TRIAL CostsDown PaymentFinancingMortgage 0FacebookTwitterGoogle +PinterestLinkedin Nasser MansurNasser is an experienced content writer with a degree in English Language and Literature. He loves writing about all aspects of the real estate investing business with focus on market and property analysis and the best sources which every real estate investor needs in order to succeed. Previous Post Question of The Day: Why Invest in Real Estate? Next Post Persistence: The Key to Success in Real Estate Investing Related Posts Best Places to Buy Vacation Rental Property for Spring Break 2019 This Is Why Location Is NOT Everything in Real Estate Investing 7 Things You Need to Know About Commercial Real Estate Is Becoming an Airbnb Super Host Feasible?: Less Obvious Tips and Tricks The Best Tips to Boost Your Occupancy Rate for Better Tenant Retention The Best Place to Buy a Vacation Home: Santa Rosa, California When will the US housing market prices go back to normal? How to Deal with Negative Cash Flow Properties What Does It Take to Become a House Investor? Mashvisor: The Secret Weapon to Your Property Valuation Best Places to Invest in Real Estate Based on Cap Rate How Much and What Real Estate Education Do You Need to Become an Investor?