Minimum down payment is usually 15% to 20%. Higher down payments mitigate the lender’s risk since rental properties are considered riskier investments. To secure the best interest rate, aim to put down at least 25%. Request estimates from your lender for both 20% and 25% down payments to compare interest rates and monthly payments. Research lenders — compare interest rates and terms.
Rates are typically about 0.75% higher than for primary residences. Higher rates compensate for the increased risk of default on rental properties.
Investment Property may have shorter terms than the standard 30-year mortgage. Loans can be fixed or variable, depending on the lender-borrower relationship. Shorter terms reduce the lender’s exposure to long-term risk.
Ideal DTI is between 36% and 45%. A lower DTI ensures you can manage additional debt without financial strain. Most lenders consider 75% of potential rental income to account for vacancies. If you’re a first-time landlord, your lender might not count your rental income during the approval process. In that case, they will only consider your personal income.