Investment Property Loan Types
Financing investment properties differs significantly from financing a primary residence. Conventional investment property loans (also called 'non-owner occupied' loans) require a minimum 15–25% down payment (compared to 3–5% for primary residence). Interest rates are typically 0.5–1.5% higher than owner-occupied rates because lenders perceive more default risk (borrowers prioritize their primary residence payments when finances are tight). FHA loans require the borrower to live in one unit — they cannot be used for pure investment properties, but can fund house hacking (buying a 2–4 unit property, living in one unit, and renting the others). Hard money loans are short-term, high-rate loans (8–15% interest, 1–3 points) from private lenders or investment groups — not based on the borrower's creditworthiness but on the property's value (LTV). Used primarily for fix-and-flip projects (buy distressed property, renovate, resell within 6–12 months) where speed of closing matters more than rate. DSCR loans (Debt Service Coverage Ratio loans) qualify borrowers based on the property's rental income rather than the borrower's personal income — ideal for self-employed investors with complex tax returns. DSCR = NOI / Annual Debt Service; lenders typically require DSCR ≥ 1.25 (property income covers debt by 25% margin).