Best Investment Home Loan Programs

Investing in real estate can be profitable, but most people do not have the cash to buy properties without loans. However, getting an investment home loan is harder than getting one for a home that you are going to occupy yourself.

Most regular lenders for investment home loan programs will want to see that you have a good credit score, good debt to income ratio and good documentation of your income and job status to ensure that your income will be stable. Most will also want you to show W-2s, tax returns and pay stubs. This can be difficult for people who make their living from investment properties.

Most lenders also will want you to have a down payment of at least 20%, and many may want you to have cash reserves for up to six months of mortgage payments. Also, if you have four mortgages already, getting a fifth one can be challenging. Most lenders, including most banks, will not issue a new loan to an investor that has four loans, even if the loan has been insured by a government agency.

But just because it is harder to investment home loans does not mean that you should not try. You may not always be able to qualify for a conventional loan on an investment property, but there are other options.

Some of the lenders below may not even care what your employment history or credit is, as long as the property has a solid profit potential:

Hard Money Loans

The easiest and fastest money to get from a lender for an investment home is a hard money loan. These are usually short-term loans that are used by house flippers and other professional real estate investors. They also may be known as fix and flip loans.

The major advantages of hard money loans are that they have quicker approval and funding. The loan might even get approved on the same day you submit the application, if the property meets the investor's parameters.

Also, it is easier to qualify for a hard money loan if you can make a down payment of at least 20%. You will probably need to have experience as a real estate investor or have another experienced investor cosign on the loan. These are usually loans of one or two years in length, so they are often not suitable for someone who wants to buy and hold rental property. They are better for flippers.

The biggest down side of this type of investment home loan is that it is more expensive. You will pay up to 16% or so interest, as well as points and origination fees. But if the profit potential is enough on the fix and flip property, this loan can make sense.

Conventional Mortgage

A conventional loan is cheaper on investment properties, but you will still pay at least one to three percent more on this type of loan than for your personal residence.

According to data from 2017, a person with good credit over 700 and 20% down would have gotten an interest rate on a regular, owner occupied home at a rate of just under 4%. But there is a risk-based price adjustment of at least .75% on top of the regular fees but not the rate. You also can get charged another surcharge that depends upon the loan to value of the loan.

If you are not going to live in the property, you will need to make a 20% down payment and have a 740-credit score to get the best rates. You also will need to have several months of cash reserves.

And once you have four conventional loans on your credit, most lenders will not work with you.

FHA

Financing your first rental property can be done quite readily with an FHA mortgage. You can get a low rate with a 3.5% down payment, but there is a catch. You will need to live in a unit in the building. You cannot use an FHA mortgage for homes that you are not going to live in. Many new investors will buy a three or four-unit building and live in one of the units and use an FHA mortgage.

You also can get an investment home loan through FHA with only a 500-credit score. You may even be able to get one of these loans on an investment property if you have past credit troubles, such as a foreclosure.

VA

If you are a military veteran or current military, may be able to use a VA loan similarly to an FHA loan. These loans come with low rates and little money down, but you will need to live in the property as with an FHA loan.

Also, you can use rents from other units of the property to qualify for the loan. This may not be possible with an FHA loan.

HELOC

You also can use a home equity line of credit or HELOC on your personal residence to buy an investment home. Or, at the very least, you can tap the equity in your home to make the down payment on one of the loans that is mentioned above. A HELOC on your personal residence can carry a low interest rate but note that you can lose your home if you do not pay the mortgage.