What Is an Investment Property Loan?

An investment property loan will help you purchase a second home that you can then use to rent out or flip for profit.

Often, investment property loans are set up as fixed-rate mortgages that typically have a higher barrier of entry and have higher interest rates. Conventional lenders generally charge a quarter to one-half percent more interest on a loan for a rental home than if the same home were used as the primary address for the borrower. Of all the different types of residential rental properties, the single-family home offers the lowest interest rate.

The most commonly available investment property loan for a non-owner-occupied property is a conventional loan that provides 75% of the appraised value or the purchase price — whichever is lower. However, Fannie Mae and Freddie Mac will make financing available up to the 80% loan-to-value level. 

Griffin Funding offers investment property loans for those interested in buying or refinancing rental properties and second homes, whether it is a:

  • Single-family home
  • Condominium
  • Multifamily 5-8 unit dwelling
  • Planned unit development (PUD)
  • Multifamily 1-4 unit dwelling

Griffin Funding strives to provide borrowers with more accessible mortgage loans by offering flexible terms and competitive investment property mortgage rates.

How to Get a Loan for an Investment Property

Getting a loan for an investment property usually requires a better financial profile than a loan for a primary residence.

Based on the investment property lender you apply with, the terms of your loan will vary. Make sure that you are ready to expand into investment property by establishing financial stability so that you can secure the most favorable loan terms. How much you pay as a down payment, how good your credit is, the rental income, and the value of the property that you intend to buy are all factors in the terms of your investment property loan.

A mortgage lender like Griffin Funding can help you determine whether you qualify for a mortgage based on our own investment property loan requirements and provide you with a quote for loan terms.

To find out if you qualify for a Griffin Funding investment property loan, submit an application online or speak with one of our loan specialists today. Our 10-step loan approval process is streamlined to make it as stress-free and efficient as possible. The most important thing you can do is ensure that you’re able to provide all the documentation we need—like proof of income—with a quick turnaround.

Together, we can help you secure an investment property loan that helps you purchase or refinance a second home.

What is the Minimum Down Payment for an Investment Property Loan?

Since mortgage insurance is not available for investment properties, investment property loans usually require a minimum 20% down payment; however, with Griffin Funding, we allow as little as 15%. How much cash that translates into depends on the value of the property you’re trying to buy.

Note that if your current home has enough equity, you may be able to use it to purchase additional property by getting a cash-out refinance and using the cash you receive for a down payment.

Can You Use a VA Loan for an Investment Property?

VA loans can be used for some investment properties. A VA loan can only be used for homes up to a maximum of four units and you must occupy one of the units. You can’t use your loan towards anything classified as anything but real estate, so mobile homes, RVs, or houseboats do not qualify.

You also must live on site. If you purchase a multi-unit property, you have the option of renting out the unused units for rental income. However, using those rentals as short-term rentals is not allowed. So, Airbnbs, bed-and-breakfasts, or other rental agreements lasting 30 days or less are prohibited.

Can You Get an FHA Loan for an Investment Property?

Just like with VA loans, FHA loans are intended for buyers of a primary residence. The borrower must live in the home for the majority of the year. After one year of ownership, you may be able to move out and rent the home if you need to move or the house becomes too small. After that point, the owner may rent out the home.

Also, like a VA loan, an FHA loan can be applied to a property with up to four units. As long as you live in one of them, the other three can be rented out.

Advantages of Getting an Investment Property Loan Through Griffin Funding

Owning an investment property makes your money work for you. Some of the top benefits of owning an investment property include:

  • Earn passive income: An investment property provides you with an additional income stream and it doesn’t necessarily have to be a full-time job. Hiring a property manager or contracting with a real estate management company can minimize the time and effort demanded of you, while still providing you with rental income. 
  • Benefit from home appreciation: Real estate tends to appreciate in value over the years, and that appreciation helps you build wealth. As you build equity in your investment property, you’ll benefit more and more from home appreciation. 
  • Diversify your portfolio: When it comes to investing, you don’t want to put all of your eggs in one basket. Real estate can help diversify your investment portfolio and hedge against risk if other investments don’t go your way. 
  • Hedge against inflation: Compared to other types of investments, real estate prices tend to keep pace with inflation, making an investment property a good hedge against inflation and fluctuations in the market. 
  • Enjoy tax benefits: In many cases, you can enjoy certain tax breaks as a result of investing in real estate. For example, you may be able to deduct things like mortgage interest, depreciation, and business expenses from your taxes. 

Griffin funding is a leading investment property lender and broker. When you work with us, you get personalized assistance from extremely knowledgeable specialists who will help you secure a loan at a competitive rate. We are transparent throughout the lending process and work hard to provide excellent customer service.

Refinancing an Investment Property Loan

If you already have an investment property loan but want to adjust your loan terms or take advantage of low rates, then you might consider refinancing your investment property loan. By refinancing, you can change your mortgage terms, lower your investment property mortgage rate, and even exchange your equity for cash.

When it comes to refinancing your investment property loan, you’ll have two main options: 

Rate-and-term refinance 

If all you’d like to achieve by refinancing is securing a lower rate or adjusting your loan term, then a standard rate-and-term refinance might be the right option for you. A rate-and-term refinance essentially means you get a fresh loan with new terms. This allows you to shorten or lengthen your mortgage term, capitalize on lower interest rates, and potentially change other aspects of your current mortgage. 

A cash-out refinance

A cash-out refinance allows you to tap into the equity you’ve built up and turn it into cash. Like a rate-and-term refinance, a cash-out refinance replaces your current mortgage with a new one. However, a cash-out refinance replaces your existing mortgage with a bigger loan amount, allowing you to pay off your current loan and pocket the difference. 

You can use the money you get from a cash-out refinance for whatever purpose you’d like. For example, you could use the cash to consolidate debts, fund renovation projects, expand your business, and much more. 

If you use the money from a cash-out refinance to upgrade or improve your investment property, this can pay dividends in the future, as you can charge higher rents for upgraded units. Alternatively, you can use the money from a cash-out refinance as a down payment on another investment property and expand your real estate investment portfolio. 

If you’re interested in refinancing a property investment loan, reach out to Griffin Funding today. We offer industry-leading expertise and a wide range of investment property financing options, from ADU loans to short-term rental loans

Other Loan Options for Investors

In addition to loans for investment property, we also offer alternative lending for experienced and inexperienced real estate investors based on the debt service coverage ratio (DSCR) of the property. Investors can put as little as 20% down and qualify for financing based on the cash flow of the investment property rather than their personal income. Get more information on our DSCR loans if you think that might be a better fit for you.

A DSCR loan is a type of no-income loan, allowing you to qualify based on your property’s cash flow and not your income. It is an easy way to expand your real estate portfolio because it allows us to determine your ability to make payments without needing your income. With a good debt service coverage ratio—which is the ratio of a borrower’s annual gross rental income and annual debt—you can qualify for competitive interest rates and lower necessary cash reserves.

Find Out If You Qualify for an Investment Property Loan

If you feel like it is time to take the next step and increase your holdings, it may be time to see if you qualify for an investment property loan. Griffin Funding is a trusted, leading lender, with a professional and customer-focused staff. We provide white-glove 5-star service, work quickly and efficiently, and pride ourselves on closing most of our purchase loans in 30 days or less.

Want to learn more about your financing options? Download the Griffin Gold app to explore investment property financing options and financially prepare yourself to invest in real estate. The Griffin Gold app offers a personalized financial dashboard, smart budgeting tools, private home search capabilities, and direct access to our mortgage professionals. 

We can find the right loan for you whether it’s a mortgage loan for a property investment or a VA, FHA, or jumbo loan. Request a quote today so we can get started.