Quick overview

Buying an investment property as a first‑time investor is different from buying a primary residence. Lenders view rentals as higher risk, so typical investor mortgages come with higher interest rates, larger required down payments, and stricter reserve rules. Still, several pathways exist depending on your credit, cash, and whether you’ll live in one unit.

Common loan programs and how they apply to first‑time investors

  • Conventional (conforming) investor loans — Widely available through banks and mortgage brokers. For single‑family rental properties lenders commonly expect larger down payments (often 15–25% or more), stronger credit, and proof of cash reserves. See differences between conforming and larger loans on FinHelp: Conforming vs Jumbo Mortgages: Limits, Costs, and Eligibility.

  • FHA (Federal Housing Administration) — FHA mortgage insurance lowers the down‑payment barrier (minimum 3.5% for eligible borrowers), but FHA loans are intended for owner‑occupied properties. Many first‑time investors use FHA to buy 2–4 unit properties and live in one unit while renting the others, which can be an effective entry strategy. Check FHA program rules at HUD: https://www.hud.gov/program_offices/housing/sfh/ins/203b

  • VA loans — Available to eligible veterans and service members with little or no down payment for owner‑occupied purchases. Like FHA, VA loans are not for pure investment properties but can work when you occupy one unit.

  • Portfolio loans and non‑QM products — Lenders keep these loans on their books and can underwrite more flexibly (bank‑statement income, DSCR loans that rely on property cash flow). These are useful for self‑employed borrowers or buyers with nontraditional income.

  • DSCR and investor‑focused products — Debt‑service coverage ratio (DSCR) loans qualify borrowers based on the property’s projected rent rather than personal income. They’re increasingly common for investors who want to qualify on property cash flow alone.

  • Hard‑money and bridge loans — Short‑term, higher‑cost options used to acquire and rehab properties quickly before refinancing into permanent financing.

Key lender requirements to expect

  • Down payment: Varies by program. Owner‑occupied routes (FHA, VA) allow lower down payments; true investment loans usually require higher down payments (commonly 15–25%+). Lenders set exact thresholds.
  • Credit score: Stronger credit gets better pricing. Expect stricter minimums for investor loans; many conventional investor products ask for 620–700+ depending on the lender.
  • Debt‑to‑income (DTI): Lenders consider your overall DTI, but some investor products allow rental income or use DSCR instead.
  • Cash reserves: Many lenders require several months of mortgage payments in reserve (often 6 months or more for investment properties).
  • Occupancy rules: FHA/VA require owner occupancy; conventional investor loans do not. Review program rules before assuming a product will work for a pure rental.

For more on how property valuations affect what you can borrow, see: Understanding Loan‑to‑Value (LTV) and Its Impact on Mortgage Options.

Real‑world examples

  • Owner‑occupied duplex strategy: Buy a duplex with an FHA loan, live in one unit, rent the other. You qualify with a lower down payment while generating rental income. HUD and FHA rules require primary occupancy and appraisal standards (see HUD guidance above).
  • Conventional investor purchase: An investor with 740 credit and adequate reserves may qualify for a conventional investor mortgage with a lower rate than a non‑prime product, but will likely still need a 15–25% down payment and 6 months of reserves.

Practical tips from an experienced advisor

  • Get pre‑approved with an investor‑savvy lender early — underwriting policies vary widely between lenders and products.
  • Improve credit and reduce DTI before applying to access better conventional investor rates.
  • Keep 6–12 months of reserves available — many investor loans require higher cash reserves than primary‑residence loans.
  • If you’re self‑employed or have non‑W‑2 income, ask about bank‑statement or DSCR loan products rather than standard income documentation loans.

In my practice I’ve found pre‑approval with a lender who understands investor underwriting saves weeks at closing and prevents surprises when rental income is counted differently.

Common mistakes and misconceptions

  • Assuming FHA or USDA will finance a buy‑to‑let without occupying the property — these programs generally require owner occupancy.
  • Underestimating reserve requirements and closing costs — investment deals often need more cash at closing.
  • Counting projected rent at full value without a professional market rent analysis — underwriters will usually require realistic, documented rents.

FAQs

Q: Can I use an FHA loan to buy a rental property?
A: Not for a pure investment. FHA loans require occupant‑use; they are commonly used to buy multi‑unit properties when the borrower lives in one unit (HUD/FHA rules). See HUD: https://www.hud.gov/

Q: What credit score do I need to qualify?
A: It depends on the program. Conventional investor loans usually perform best with higher scores (often 620–700+). FHA/VA have different thresholds tied to program rules and lender overlays.

Next steps

  1. Decide whether you will occupy any portion of the property (that opens FHA/VA options).
  2. Gather documentation (credit report, two‑year income history or bank statements for non‑QMs).
  3. Speak to lenders who specialize in investment properties and compare loan pricing, reserve requirements, and underwriting overlays.

Professional disclaimer

This article is educational and not individualized financial advice. Underwriting rules and rates change; consult a licensed mortgage advisor or CPA for decisions specific to your situation.

Sources and further reading

(Internal resources for related topics: Mortgages for Investment Properties: Qualification Differences, Understanding Loan‑to‑Value (LTV) and Its Impact on Mortgage Options, Conforming vs Jumbo Mortgages: Limits, Costs, and Eligibility).