Investment and rental property mortgage rates: 2022 Guide

Gina Freeman
Gina Freeman
The Mortgage Reports Contributor
January 21, 2022 - 15 min read

Investment property rates are above ‘standard’ rates

If you buy an investment property at the right price and finance it correctly, it can create cash flow for you almost immediately.

But getting an ultra-cheap mortgage rate on a rental or investment property is tougher than for a primary residence. That’s because lenders charge more for “non-owner occupied” transactions — meaning a property you don’t plan to live in.

Despite higher rates, investing in real estate is often a good idea long-term. Here’s how much you can expect to pay now to finance that future cash flow.

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How much higher are mortgage rates for investment properties?

Mortgage interest rates will always be higher on rental and investment properties than on your primary residence.

How much higher? Technically, the answer to that question depends on the type of investment property, your creditworthiness, and your down payment.

But as a rule of thumb, you can expect the interest rate on your investment property to be at least 0.50% to 0.75% higher than the rate on your primary mortgage.

As a rule of thumb, you can expect investment loan rates to be at least 0.50% to 0.75% higher than the rate on your primary mortgage.

For example, today’s live 30-year fixed rate as of September 27, 2022 is % (% APR), so the investment property rate would be around % to % (% - % APR).

Lenders add this upcharge because they consider rental and investment property mortgages to be a riskier loan product.

Mortgage borrowers tend to bail on rental properties before they’d bail on their primary residence if the going gets tough. Thus, these types of home loans are more likely to default during hard economic times.

To protect themselves against the extra risk that comes with investment property financing, lenders charge a higher interest rate and have stricter qualification rules for borrowers.

That makes it extra important to shop around and make sure you’re getting a fair mortgage rate on your investment property before you buy.

Math behind rental and investment property loan rates

Behind the scenes, the rate your mortgage lender charges isn’t totally up to the lender. Property lenders often adjust rates to meet rules set by Fannie Mae and Freddie Mac.

Fannie and Freddie set rules and fees for most mortgages today — and the fees they charge directly affect the final interest rate you pay.

Because of the increased risk of purchasing or refinancing investment properties, Fannie Mae and Freddie Mac charge higher fees on those transactions. Their fees trickle down to you as a higher interest rate.

Type of investment propertyTypical rate increaseMarket interest rates (example)Interest rate for investment property (example)*
1 unit0.5 - 0.75%3.5%4.0%-4.25%
2-4 units0.625 - 1%3.75%4.375%-4/75%

*Rates shown here are an example set meant for comparison only. Your own rates will vary. 

For instance, an investment property loan with a 20% down payment would require a fee equal to 3.375% of the loan amount.

This is the same as $3,375 for each $100,000 borrowed.

In most cases, the borrower chooses to pay a higher interest rate instead of extra dollars in closing costs. So, how do these fees translate to your final rate?

In this case, 3.375% in investment property loan fees can be covered by an extra 0.5% to 0.75% added to the rate.

Keep in mind this is for a single-family home. Buy a duplex and you might pay another 1.0% in fees, or 0.125% to 0.250% added to your rate.

“To get the best rates, you will want to put at least 25% down. The ideal loan-to-value ratio for investment purchases is 75% or less,” advises Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

What are current investment property mortgage rates?

Investment property rates are usually at least 0.5% to 0.75% higher than standard rates.

So at today’s average rate of % (% APR) for a primary residence, buyers can expect interest rates to start around % to % ( - % APR) for a single-unit investment property.

Note, today’s average rates are based on a prime borrower profile, with a credit score of 740 and 30% down payment.

If you have lower credit or a smaller down payment, your interest rate will likely be higher than what you see advertised.

“You typically need at least 20% down payment, but preferably 25%,” reminds Meyer.

That’s why average rates should be used as a benchmark only.

Your own investment property rate will be different, so be sure to compare quotes from a few lenders and find the best deal for you.

What affects my investment property interest rate?

Fannie Mae and Freddie Mac guidelines aren’t the only things that affect your investment property mortgage rate. All the personal factors that determine mortgage rates are in play, too.

That includes:

In fact, your personal finances — including your credit report and possibly your tax returns — will be put under even stricter scrutiny when you buy an investment or rental property than when you buy a home to live in.

It will take a more robust financial profile to qualify for your investment mortgage — and to score a competitive rate on top of that.

Investment property loans require larger down payments

Most rental property buyers will finance their homes via conventional loans. Following are down payment requirements to buy a rental property.

Loan type1 unit2-4 unit
Fixed-rate mortgage15% down25% down
Adjustable-rate mortgage15% down25% down

A down payment of 15% to 25% is a considerable amount, especially compared to the 3% you could put down on a conventional mortgage for a primary residence — or the 0% down payment for homebuyers qualifying for the USDA or VA mortgage loan programs.

Bigger down payment requirements are just another way lenders protect themselves against risk when underwriting loans for real estate investing.

Investment property credit score requirements

When you finance an investment property, lenders generally want to see a better credit score than they do for primary residence buyers.

For instance, Fannie Mae borrowers putting at least 25% down could get approved with a 620 FICO score for a primary home. That minimum credit score increases to 640 for a rental.

If you don’t have great credit, you can try an FHA loan — its underwriting is much more lenient.

FHA loans are available for homes with up to four units, and credit score requirements start at 580. The catch? You must live in one of the units, so the building is still technically a primary residence.

Other guidelines for rental and investment property loans

When you apply to buy a rental property, underwriters will verify your ability as a potential landlord. If you’ve never owned a home or managed any property, you’ll have a tougher time.

Some lenders allow first-time real estate investors to get around this by hiring a property manager. There is nothing definitive about this in the official guidelines so check with your loan officer.

There are limits to the number of properties you can own with mortgages on them, if you go with conforming (Fannie Mae or Freddie Mac) financing.

And you’ll be required to have reserves — several months of mortgage payments — in the bank to cover those months when your property is unoccupied.

How to get a lower mortgage rate for your investment property

It’s hard to escape high interest rates on investment real estate. But there are ways to make sure you get the best deal possible.

1. Make a bigger down payment

The surest way to get a lower interest rate on your investment property is to make a bigger down payment. Much of the added cost goes away if you can put at least 20% down.

It might be worth borrowing against the equity in your current home to increase your rental’s down payment. You can also buy a cheaper house, or find a foreclosure you can buy at below market value.

You could even consider — if this is an exceptional investment — borrowing against your 401(k).

2. Improve your credit score

Most rental property buyers will finance the purchase with a conventional loan (more on investment property loan types below).

Rates for these types of investment loans are ultra-sensitive to credit score. Following is an example of a buyer with a 650 score compared to a 720-score buyer.

Credit scoreHome priceDown paymentRateP&I paymentSavings

Because of the lower monthly payments, the home buyer with the better credit score could afford to offer tenants a better rental price.

This real estate investor could also use the lower monthly payment to create more cash flow.

3. Shop around

Studies of homebuyers who submitted loan applications multiple times reduced their chances of unfavorably high mortgage rates by nearly 5%. While homebuyers who only conducted one search, routinely paid higher mortgage rates than other borrowers.

Furthermore, homebuyers who searched at least five times got lower mortgage rates than borrowers who compared only three quotes.

We recommend comparing rates from a minimum of 3-5 lenders before choosing one to finance your investment property.

Types of rental property mortgages

When purchasing an investment property, you have access to many of the same property financing options as people buying their primary homes.

Conventional loans

You can use a standard conventional loan (also known as a conforming loan) for an investment property. The minimum down payment is 15%, but 20% is recommended to avoid mortgage insurance.

Government-backed loans

You can buy an investment property with an FHA or VA loan if you choose a multi-unit property (2-4 units) and live in one of the units.

These home loans come with minimum down payments as low as 3.5% for an FHA loan and 0% for a VA loan (when you meet eligible military service requirements).

Portfolio loans

Portfolio lenders can make up their own investment property loan rules. You may be able to put less down or finance more properties with these programs, but you should expect higher interest rates.

Hard money loans

Hard money lenders charge high interest rates and steep fees, but these short-term loans could help when you’ve found a great investment opportunity and need the money fast.

Speed of financing is one of the only reasons to consider a hard money loan. Most real estate investors can find better financing options with another loan type.

Commercial loans

Finally, for those who want to borrow solely against the income of the property, or buy projects with more than four units, there are commercial residential loans. They can be expensive and complex to set up.

You will probably have to establish a single asset bankruptcy remote entity, which prevents property owners from siphoning off the rental income without paying the mortgage.

Alternative investment property financing

Your seller may be happy to have an income stream from you without the hassles of being a landlord. Seller financing can be cheaper than banks or brokers.

The seller may be more interested in unloading the property than in profiting from your mortgage. But make sure you get the home appraised and inspected before buying.

Alternatively, there are lenders that specialize in financing commercial residential property — from homes to apartment buildings.

As long as the property income is sufficient to cover the mortgage and other expenses, they may finance you for less.

Investment and rental property mortgage FAQ

Are mortgage rates higher for investment properties?

Yes, mortgage rates are almost always higher for investment properties. Investment property mortgage rates for a single-family building are about 0.50% to 0.75% higher than for owner-occupied residence loan rates. If you’re purchasing a 2-4 unit building, expect the lender to tack at least another 0.125% to 0.25% onto your interest rate.

Can you get a 30-year loan on an investment property?

Yes, you can get a 30-year loan on an investment property. 30-year mortgages are actually the most common type of loan for second homes. However, terms of 10, 15, 20, or 25 years are also available. The right loan term for your investment property will depend on your purchase price, interest rate, and monthly budget. A higher interest rate or shorter loan term will mean higher monthly payments. A 30-year loan on your investment property will generally mean lower monthly payments, but more interest paid over the life of the loan.

Can I get a mortgage for an investment property?

Whether or not you can qualify for a mortgage on an investment property depends on your financial portfolio. You’ll need a credit score of at least 640 — though you probably want your score above 700 to qualify for a lower interest rate. You’ll also need a down payment of at least 15% to 20% and significant cash reserves.

How much do you have to put down for investment property?

The minimum down payment for a 1-unit investment property is 15% for conventional loans. However, it will come with mortgage insurance and higher rates. Make a 20% down payment to bring down costs. For a 2-4 unit home, the minimum down payment is 25%. If you are buying a 2-4 unit and can live in one of the units, you can use an FHA loan with as little as 3.5% down.

Are there investment property loans available with 10% down?

You can buy a 2-4 unit home and live in one unit, and use an FHA loan for 10% down. Otherwise, there may be individual banks and lenders that offer proprietary programs at 10% down. Additionally, the seller could carry the financing and allow a 10% down payment. There are no conventional loan options(Fannie Mae and Freddie Mac) at 10% down.

Are there zero-down rental property loans?

These exist but will be tough to get. The only viable way is to buy a multi-unit property and live in one unit. Use an FHA loan, then get gift funds from an eligible donor for the 3.5% down. There are also hard money loans, lease-to-buy options, and going in on the home with an investment partner who has a down payment. If you’re a veteran or service member, you may be able to buy a multi-unit property with a zero-down VA loan — as long as you plan to live in one of the units while renting the others out.

Can a home equity loan finance an investment property?

A homeowner could use money from a cash-out refinance, home equity loan, or home equity line of credit for any purpose — including financing an investment property. For many investors, a second mortgage on their primary residence could generate enough cash for a down payment on a new property loan. But you’d be limited by the amount of equity in your existing home.

How do you find good investment properties?

A real estate agent in your area could help you find rental properties to buy. You could also find properties on Realtors’ sites online or by driving around your region in search of real estate signs.

Is there an easier way to own an investment property?

Perhaps the easiest way to obtain a rental is to buy a primary residence, live in it for at least a year, then convert it into a rental. You move out, rent the home, then rent or buy a separate residence. You keep your lower interest rate since you originally acquired it as an owner-occupied residence. It’s much easier to cash flow a property with this method.

Can I make money with a rental or investment property?

Whether or not you make money on a rental property depends on many factors specific to your financial situation and the investment property itself. Keep in mind the promises of big returns can be deceptive once you tally up closing costs, origination fees, property taxes, title and homeowners insurance, real estate agent commissions, initial renovation costs, and ongoing maintenance.

What are today’s investment property rates?

Mortgage rates for investment properties are higher than those for primary residences because they are viewed as higher risk.

Still, rental properties are usually a great investment in the long run, and a slightly higher rate might not matter much when compared to the returns you’ll see on the property.

Every applicant is different. The best way to get your current investment property mortgage rate is to get quotes from multiple lenders and make them compete.

Rates change all the time, so contacting lenders online is the quickest way to get a fist full of rates to compare.

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