What Are Investment Property Loans?
If you’re entering the real estate investment space, you might be asking, how do investment property loans work? An investment property loan is a mortgage used to purchase a residential property you plan to rent out. These properties can include:
- Single-family homes
- Duplexes or multi-family units
- Condos or townhomes
- Vacation rentals
Unlike owner-occupied home loans, non-owner-occupied investment property loans are structured around rental income potential and your ability to manage additional mortgage payments.
A Note on Terminology
In some countries, such as the U.K., Australia, or Ireland, investment property loans are commonly referred to as buy-to-let (BTL) mortgages or buy-to-rent mortgages.
In the U.S., these terms may be used informally, but lenders will usually refer to them as non-owner-occupied loans or investment property financing.
How Non-Owner-Occupied Investment Property Loans Work
Here’s how the process typically differs from getting a primary residence mortgage:
- Larger Down Payments
Most lenders require at least 15–25% down for a non-owner-occupied investment property loan, depending on the number of units and loan type.
- Stronger Financial Requirements
- A higher credit score is often required (typically 680+)
- Debt-to-income ratio (DTI) should be well below 45%
- Lenders may want to see cash reserves on hand
- Rental Income Considerations
Many lenders allow projected rental income to count toward your qualification, but only a portion (usually 75%) is factored in.
- Higher Interest Rates
Investment property loans often carry higher interest rates than primary home mortgages to offset risk.
How Owner-Occupied Investment Property Loans Work
Here’s how the process typically works when you live in one part of the property and rent out the rest:
- Lower Down Payment Options
FHA loans require as little as 3.5% down; conventional loans may allow 15% down for a 1-unit property. - Broader Loan Availability
Owner-occupants may qualify for FHA, VA, and conventional loans, with more favorable terms than non-owner-occupied borrowers. - Rental Income Can Help You Qualify
Up to 75% of projected rental income may be counted toward your income to help meet qualification requirements. - Better Interest Rates than Non-Owner-Occupied
Living on-site often qualifies you for lower interest rates than purely investment-focused loans.
Why Entrepreneurs Choose Investment Property Loans
For many entrepreneurial buyers, real estate investing offers a path to:
- Passive income through monthly rent
- Property value appreciation over time
- Long-term wealth building and tax advantages
Buy-to-rent mortgages and BTL mortgages may sound different, but the goal is the same: to finance a home that can generate return on investment through rental income.
Questions to Consider Before Applying
Before moving forward, ask yourself:
- Is the local rental market strong and stable?
Understanding vacancy rates and comparable rents is key. - Can I cover the mortgage if the property is vacant?
Even a short-term vacancy could impact cash flow. - Am I prepared for the responsibilities of a landlord?
From maintenance to tenant screening, property management matters. - Do I understand lender expectations?
Requirements may include property condition, insurance coverage, and appraisal guidelines.
What to Look for in a Lender
Not every lender offers loans for rental properties. When researching buy-to-let mortgage lenders or investment property loan providers, consider:
- Experience with investor borrowers
- Clear rental income qualification criteria
- Options for future property acquisitions
- Support for multi-unit or mixed-use properties
Midland States Bank works with both first-time and experienced investors to structure financing solutions that fit real-world goals.
Ready to Get Started?
Whether you call them investment property loans, buy to let mortgages, or buy to rent mortgages, the concept is the same: financing a home that produces rental income.
Understanding how these loans work and how they differ from standard mortgages helps you make informed, strategic decisions as you step into real estate investing.
Have questions? Let’s talk through your financial goals and investment strategy to see if this type of loan is the right fit. Start a conversion with a mortgage lender today or start the application process online.
