9 Things That Affect Your Ability to Buy a Rental Property


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Like most rookie investors, you may not have a lump sum of cash sitting around burning a hole in your pocket.  Most of us start this journey by having to obtain financing.  However, because of the earlier market crash, guidelines have become stricter and it is harder now to qualify for a loan.  But don’t be dissuaded, we have detailed information here on what is considered when trying to get financing for your first 4 investment properties.

When wanting to buy a property as an investor, which is different than buying as a primary owner occupant, the guidelines are different.  Loan officers will look at the following areas to see whether you can qualify for the loan.

Total Income

  • Banks will look at your total income.  So, if you are investing with a spouse, friend, or business partner, the bank will look at your total combined income for qualifying.

LTV (Loan to Value) Ratio

  • When you borrow, the banks will look at how much you are planning to put down and how much you plan to borrow.  The more money you put down will allow you to have a lower rate and a better chance of qualifying.  Think about it, banks care about your ability to pay your mortgage.  The more money you put down results in the banks having a cushion from you defaulting on the loan. In most cases for investors, you will need to put down 20% resulting in an LTV of 80%.

Debt-Income Ratio

  • Even though you may make a lot of money, your debt can and will determine your ability to qualify.  Your lender will look at your debt to income ratio- meaning your total debt may not exceed 40-45% of your gross income per year.  What is included in total debt- things like car payments, student loans, credit card bills, current mortgages.  What’s not included- utilities, cable bills, phone bills, etc.  So what is the moral of the story?  Someone who makes very little money, but has little to no debt can have a better chance at qualifying vs. someone who makes a lot of money, but has incurred a lot of debt.

 Reserve Fund

  • As an investor you must prove that you have 6 months of reserve payments for both your primary residence AND your investment property.  For 100% of the cash value to be counted this reserve money must be in the form of cash, savings, and/or checking accounts.  Banks will also look at retirement accounts and IRAs; however, they only count 70% of the account value because of penalties and tax rates that would ensue if you were to access these funds.


  • When buying an investment property, through a normal sale, in most cases you will have a downpayment of 20% of the purchase price.  There are some programs that require a smaller downpayment.  So, if 20% is too high for where you are right now, seek out programs like Homepath that require a lower down payment for investors.


  • Believe it or not, your history plays a role in your future.  Your credit score, which tracks your ability to repay borrowed money, will determine whether you can qualify for a loan and the interest rate that you will receive.  A higher credit score = a lower interest rate and better terms.

Loan Program

  • There are a variety of loan programs that exist, and each program has different guidelines and requirements.  The loan program will dictate varying terms and rates.  For example, for owner occupants there is FHA, whereas for both owner occupants and investors, Conventional loans exist and each one requires different things from the borrower.

Interest Rate

  • As an investor, know in the beginning that you will have a higher interest rate than if you were to buy as an owner occupant. Why? From the bank’s perspective, investment properties pose a higher risk.  If you only had the money to pay one mortgage, you would pay for the house that you are living in.  For this reason, banks have a higher interest rate because there is a higher default for investors.

Property Type

  • The type of property that you plan to invest in will also determine your qualifying ability.  If you plan to invest in a multi-unit, such as a triplex or smaller apartment building, the requirements and terms for qualifying will be stricter than if you were to invest in a single family residence.

Yes, understanding the financing aspect of investing can be a little tricky.  Guess what, after you buy your first 4 investment properties it gets even a little more confusing.

Like I said, don’t be overwhelmed with qualifying, but finding a trusted lender can help you feel comfortable with this process.

*Keep in mind that guidelines and programs change daily.  Always make sure to check with your trusted mortgage advisor.

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