Securing a mortgage for a rental property differs significantly from obtaining one for a primary residence. Let’s dive into the nuances and justifications for these differences.
Government-Backed Loans such as FHA, VA, and USDA loans are designed for primary residences. They offer lower down payments and more lenient credit requirements. These loans cannot be used for rental properties unless it’s a multi-unit property where you live in one unit.
Rental Property Loans:
These are the most common for rental properties. They require higher credit scores and larger down payments.
Used for properties that exceed conforming loan limits. They come with stricter requirements and higher interest rates.
If you already own a home, you can leverage its equity to finance a rental property:
A lump sum loan based on your home’s equity.
A revolving credit line that you can draw from as needed.
Lenders typically allow you to borrow up to 80% of your home’s equity.