Broker Back-to-School: Investment Property Financing 101
As a mortgage broker, a diverse client base is key to your business growth. Serving clients looking to purchase investment properties can be a smart way to widen your net.
With back-to-school in full swing, we wanted to offer some investment property education basics for our brokers. This blog outlines the key concepts, financing types, and qualifying guidelines so you can better assist your clients—especially those who ask about options like a business loan to purchase property or those navigating multiple investment strategies.
What Is Investment Property Financing?
Investment property financing refers to loans used to buy real estate that generates income—such as rental homes, duplexes, triplexes, or short-term vacation rentals. These can differ significantly from primary home loans.
For investment properties, your clients may need to meet stricter underwriting standards and pay higher rates. Understanding these nuances enables you to better set client expectations and help them choose the right product.
Common Financing Options for Investment Properties
Several financing options exist depending on your client’s profile, goals, and the type of property. Below are some of the most common investment property loan types.
Conventional Loans
This is the most common route for individual investors. They can offer favorable terms in the long run, and are best for financially strong clients purchasing 1–4 unit properties.
- Minimum 20-25% down payment
- Credit score of 660+ typically required
- Six months or more of cash reserves
- Strict DTI ratio limits (typically no higher than 50%)
DSCR (Debt Service Coverage Ratio) Loans
DSCR loans are designed specifically for investors. These loans qualify based on the property’s income potential rather than the borrower’s personal income.
- Fast approvals and flexible underwriting
- Ideal for self-employed or high-volume investors
- Rental income must exceed mortgage costs (usually DSCR > 1.0)
These loans are great for clients who want to expand their portfolio without personal income documentation. Learn more about Cardinal Financial’s DSCR product suite here.
Typical Borrower Requirements for Investment Property Loans
Helping clients succeed in the investment property space starts with prepping them for what’s ahead. Qualifying criteria tends to be more restrictive for investment properties than for primary residences, and there are fewer programs, like down payment assistance, available to help. Each situation is unique, but here’s what the average real estate investor can expect to need:
- Down Payment: 20–25% minimum
- Credit Score: 700+ preferred for better terms
- Reserves: Lenders often require 6–12 months of reserves
- Rental Income Documentation: Leases, rent rolls, or market rent analysis
Encourage your clients to get pre-approved early to understand their purchasing power and any gaps in qualifications that they need to address.
In Review: Investment Property Financing 101
Whether your clients are buying their first rental or scaling a property portfolio, investment property financing is a powerful tool. By understanding loan types—including the growing use of the business loan to purchase property—and by staying informed about underwriting standards, you’ll provide unmatched value.
Investment property financing can be a great way to expand your client base.
