Mortgages for real estate investors: conventional rental loans, DSCR and hard money

An investment property loan is priced on the property and the exit, not on your paycheck — and most consumer mortgage protections quietly fall away with it.

“Real estate investor” covers a landlord with one rental, a flipper running three projects at once, and a syndicator with forty doors in an LLC. Lenders do not care which label you use. They care about one thing: the home will not be your residence, so the loan is a business decision about a business asset. That single fact changes the products you can use, the way your file is underwritten, and — less obviously — the federal consumer protections that no longer stand behind you.

The financing menu, and who each option fits

Conventional investment property loans (Fannie Mae and Freddie Mac) are the cheapest long-term money for individuals with W-2 or tax-return income. Expect 15% down on a one-unit rental (with mortgage insurance) and 25% on two-to-four units, a rate add-on through loan-level price adjustments that grows with LTV, six months of reserves on the subject property plus a percentage of the balance on every other financed property, and a hard ceiling of ten financed properties per borrower (including your own home). Above six financed properties the credit score bar typically rises to 720.

DSCR loans qualify the property instead of the person: the lender divides gross rent by the proposed payment (principal, interest, taxes, insurance, association dues) and usually wants a ratio of 1.0 to 1.25 or better. No tax returns, no personal debt-to-income ratio, borrowing in an LLC is common. The trade-offs are a higher rate than agency money, 20% to 25% down, and a prepayment penalty — often a three- or five-year step-down — that would be restricted on a consumer loan but is routine on a business-purpose one. See our comparison of DSCR versus conventional.

Hard money and bridge loans are short-term, asset-based credit for purchases that cannot wait or properties that cannot yet qualify: an auction buy, a house with a failed roof, a rehab funded in draws. Typical terms run six to eighteen months at illustrative rates in the low double digits, with one to three points at closing and advances capped around 65% to 75% of value or about 70% of after-repair value. The exit — sale or refinance — is the whole underwriting. Our hard money hub and primer walk through the mechanics.

Portfolio lenders — community banks and credit unions that keep loans on their own books — fill the gaps: five-plus-unit buildings, mixed-use, borrowers past the ten-property limit, blanket loans across several properties. Terms are negotiated, not published, and a relationship with the bank matters more than a score.

How underwriting reads an investor file

Income. Agency lenders count 75% of gross rent (a 25% vacancy and maintenance haircut) from a lease or the appraiser’s rent schedule; if you have never reported rental income on a Schedule E, some programs let the rent offset the new payment but not add to your qualifying income. DSCR lenders skip your income entirely. Hard money lenders look at liquidity and the deal.

Assets. Reserves are where investor files fail. Agency rules layer reserves for each financed property, and lenders want them seasoned and sourced — a fresh deposit from a private partner needs a paper trail. Gift funds are generally not allowed on investment properties.

Credit. Agency floors sit at 620 to 680 depending on the scenario, but pricing improves sharply above 740 and the add-ons for investment occupancy stack on top of score and LTV add-ons. DSCR programs commonly start near 660; hard money lenders often pull credit only to screen for recent bankruptcies or judgments.

Occupancy. This is the line you must not cross. Signing a primary-residence application for a home you intend to rent — to get 3% to 5% down and a lower rate — is occupancy fraud, a federal crime that also lets the lender call the loan. The legitimate path is the opposite sequence: buy a two-to-four-unit building, live in one unit for the twelve months your mortgage requires, then move on and keep it as a rental.

BRRRR, delayed financing and the LLC question

Buy, rehab, rent, refinance, repeat works because of two rules. Fannie Mae’s delayed financing exception lets you buy with cash (or hard money that is paid off at closing), then pull cash out within six months of the purchase without the usual seasoning, capped at the documented purchase price plus closing costs and by the cash-out LTV limit — 75% on a one-unit rental. After six months, a standard cash-out refinance uses the appraised value instead. Our guide to refinancing a BRRRR into conventional lays out the documents that trip people up, starting with proof that the original purchase funds were yours and not borrowed against the property.

Vesting in an LLC protects you from tenant lawsuits but complicates agency financing: Fannie Mae and Freddie Mac lend to individuals, and transferring a financed rental into an LLC afterward is allowed only under narrow servicing rules. DSCR, hard money and portfolio lenders typically lend directly to the entity with a personal guarantee — which is why your personal credit and assets remain on the line.

What to ask before you sign

Is this loan documented as business-purpose, and what disclosures will I not receive? Is there a prepayment penalty, for how long, and on what formula? What default interest rate and cure period does the note carry? How are rehab draws inspected and how fast are they funded? Does the lender require flood insurance, builder’s risk, or a specific landlord policy? Which state licenses does the lender hold, and is the broker fee written into an agreement? Every one of those answers is a number or a document; a lender who answers with adjectives is telling you something.

What matters most

Agency investment loans need 15% down on one unit (with PMI) and 25% on two-to-four units, six months of reserves, and cap you at ten financed properties.
DSCR lenders qualify the rent, not your tax returns — usually a 1.0 to 1.25 coverage ratio — and nearly always attach a multi-year prepayment penalty.
Hard money is underwritten on the exit: 65-75% of value or about 70% of after-repair value, one to three points, six to eighteen months.
Most consumer protections — TILA, RESPA, TRID, ATR/QM, HOEPA, servicing rules, LO compensation limits — do not cover business-purpose loans; read the note instead.
Delayed financing lets you refinance a cash purchase within six months up to the purchase price plus costs; after that, appraised value applies.
Claiming a rental as your primary residence is occupancy fraud — a federal crime that also lets the lender demand the full balance.
Fair Housing, ECOA, SCRA and FCRA follow you into the landlord’s chair: tenant screening and leasing carry their own compliance duties.

Federal rules, read for real estate investors

Hard money rules by state

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Frequently asked questions

How much do I need to put down on an investment property?

Conventional loans generally require 15% on a single-unit rental (with mortgage insurance) and 25% on two-to-four units or on most cash-out refinances. DSCR programs usually ask 20% to 25%, and hard money lenders advance 65% to 75% of value, so you fund the rest plus rehab. Seller concessions are capped at 2% on investment purchases, and gift funds are typically not allowed.

Can I get an investment property loan in an LLC?

Not from Fannie Mae or Freddie Mac, which lend to individuals. DSCR, hard money and portfolio lenders commonly close in an LLC with a personal guarantee from the members. Transferring an agency-financed rental into an LLC later may be permitted under the servicer’s rules, but check the due-on-sale clause and your title insurance before you record a deed.

Does the 10-property limit include my own home?

Yes. Fannie Mae and Freddie Mac count every one-to-four-unit residential property you have financed, including your principal residence, toward the limit of ten when the new loan is for a second home or investment property. Commercial buildings, land and properties owned free and clear do not count. Beyond ten, portfolio lenders and DSCR programs are the usual path.

Is a DSCR loan legally a consumer mortgage?

Generally no. A loan to buy or refinance a rental you will not occupy is presumed business-purpose under Regulation Z, which removes TILA, RESPA, TRID, ATR/QM and HOEPA coverage. That is why DSCR lenders can use prepayment penalties and skip the Loan Estimate. ECOA, HMDA reporting, flood insurance rules and fair housing obligations still apply.