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Informational only. Not mortgage advice. Consult an NMLS-licensed loan officer for personalised guidance.
Investment Property Mortgage Pre-Approval 2026
Investment-property pre-approval applies a different rulebook than primary-residence financing. Down payments start at 20 percent (15 percent on 1-unit with very strong credit), reserves jump to 6 months of PITI on the subject property, rental income discounts to 75 percent of gross, and pricing carries a 1.5-2.5 point LLPA stack on top of any credit penalty. This page maps the conventional 5-10 properties rule, the DSCR loan alternative, and the FHA house-hacking exception.
All figures as of May 2026. Rules per Fannie Mae Selling Guide sections B3-3.1 and B5-6, and Freddie Mac Single-Family Guide Chapter 5306.
Quick Answer for Investment Property
$300K 1-unit investment, 740 FICO, 20% down: $60,000 down + $18-22K reserves
Rate quoted: ~7.50% (1.00% above primary)
Assumes conventional 30-year, 1.1% tax, $1,800/yr insurance. As of May 2026.
The LLPA Stack on Investment Property
Conventional investment-property loans carry a specific LLPA adjustment that applies on top of the standard credit-and-LTV grid. At 80 percent LTV (20 percent down) at 740 FICO, the standalone investment LLPA is 1.625 points. Combined with the standard credit-and-LTV pricing (0.500 points at 740/80), the total LLPA on a 1-unit investment loan is 2.125 points.
2-4 unit investment carries a further 1.000-point adjustment, bringing the total LLPA to roughly 3.125 points on a 2-4 unit at 740/75 LTV. On a $400K loan that is $12,500 in fees, or 0.75 percent passed through as rate.
Putting more down reduces the LLPA hit. At 75 percent LTV (25 percent down) the investment LLPA drops to 1.375 points; at 70 percent LTV it drops to 1.000 point. The economic case for going past 20 percent down is stronger on investment than on primary, because the LLPA savings stack on top of the no-PMI savings.
Rental Income Offset Rules
For a new investment property (no prior lease history), the lender uses 75 percent of the market rent established by Form 1007 (Single-Family Comparable Rent Schedule). The 75 percent figure captures a 25 percent deduction for vacancy, maintenance, and management. The net rent is added to the borrower's qualifying income for DTI calculation. If net rent exceeds the full PITIA on the property, the excess income lifts qualifying capacity; if net rent is less than PITIA, the shortfall counts as a monthly liability.
For an existing rental property the borrower already owns, the lender uses actual income shown on Schedule E of the tax returns, again discounted to roughly 75 percent. Properties held less than two years use the 75 percent of market rent rule. Properties with a 24-month documented landlord history may use a 100 percent net income calculation (NOI) instead, which usually qualifies more strongly.
Important: depreciation and other non-cash deductions on Schedule E are added back to net income for qualifying purposes (these are not real cash expenses). Most borrowers see qualifying income 30-50 percent higher than the Schedule E bottom line once add-backs are applied.
Conventional vs DSCR vs Hard Money
| Feature | Conventional | DSCR | Hard Money |
|---|---|---|---|
| Min FICO | 680 | 660-680 | 600-640 |
| Down payment | 15-25% | 20-25% | 25-35% |
| Qualifies on | Personal income (DTI) | Property cash flow | Property + exit strategy |
| Documentation | Full doc (2yr taxes) | Lease + appraisal only | Minimal |
| Rate | PMMS + 1.0-1.5% | PMMS + 1.5-2.5% | PMMS + 4-8% |
| Term | 15 or 30 yr fixed | 30 yr fixed, IO options | 6-24 months |
| Max loans | 10 financed | Unlimited | Unlimited |
| Best for | 1-3 properties | Scaling portfolio | Flips, bridge |
Conventional is cheapest by far on borrower cost. DSCR opens up to investors who exceed the 10-financed-property limit or want to skip W-2 documentation. Hard money is bridge / flip financing, not long-term hold.
The 2-4 Unit House-Hack Path
FHA does not allow pure investment loans, but it does allow owner-occupied 2-4 unit properties at 3.5 percent down. The buyer lives in one unit (required for at least 12 months) and rents the others. After 12 months of owner occupancy, the buyer can vacate and convert the property to pure rental without violating the original loan terms.
Numerically: on a $500K 2-unit FHA purchase at 3.5 percent down, the borrower brings $17,500 (vs $100K on conventional investment). FHA MIP applies (0.55 percent annual on a 30-year), but qualifying rent on the non-occupied unit covers a meaningful share of the payment. If the rented unit pulls $1,800 a month, FHA credits 75 percent ($1,350) toward qualifying income, which typically offsets most of the PITI uplift from the larger loan amount.
For 3-4 unit FHA purchases, FHA applies a self-sufficiency test: the net rent on the non-occupied units (75 percent of market rent) must cover the full PITI plus MIP on the property. The self-sufficiency test rules out many high-cost-area 3-4 unit purchases unless the rental yields are strong. The test does not apply to 2-unit FHA, which is why the 2-unit house-hack is the most common entry point.
Cash Requirement on $300K Investment 1-Unit
Numbers assume 740 FICO, conventional investment, 20 percent down, 7.50 percent rate, $2,200 monthly PITI.
| Component | Amount |
|---|---|
| Down payment (20%) | $60,000 |
| Closing costs (~3.5%) | $10,500 |
| 6-month subject-property reserves | $13,200 |
| 2-month primary-residence reserves ($2,800 PITI) | $5,600 |
| Inspection + due diligence | $1,500 |
| Total cash to close + reserves | $90,800 |
Reserves can include vested retirement accounts (60% of value) and brokerage holdings (60-70% of value), not just cash. Tightening the reserve calculation often shrinks the apparent cash requirement.
Frequently Asked Questions
How much down payment do I need for an investment property?
Conventional investment property requires 15-25 percent down depending on the property type. 1-unit investment with very strong credit (740+ FICO, 6 months reserves) sometimes allows 15 percent down at premium pricing. The typical floor is 20 percent down for 1-unit investment and 25 percent down for 2-4 unit investment. FHA does not allow non-owner-occupied investment loans (only owner-occupied 2-4 unit where the buyer lives in one unit). DSCR loans typically require 20-25 percent down at higher rates.
Can I use future rental income to qualify?
Yes, under specific rules. Per the Fannie Mae Selling Guide, projected rental income for a new investment property is calculated as 75 percent of the gross monthly market rent (the 25 percent vacancy and management deduction). The remaining net is added to your qualifying income for DTI calculation. Market rent is established by a comparable rent schedule (Form 1007) prepared by the appraiser. For existing rental properties you own, lenders use the actual rent shown on Schedule E of your tax returns, also discounted to 75 percent unless the property has a 24-month documented landlord history.
What credit score do I need for investment property?
Conventional investment property generally requires 680 minimum FICO, with 720+ delivering meaningfully better pricing. Below 680 the LLPA matrix prices investment loans punitively (the investment LLPA alone is 2.125 points at 80 percent LTV at 680 FICO, dropping to 1.625 points at 740). DSCR loans typically require 660-680 minimum but price 0.50-1.50 percent above conventional investment loans. For pure investor profiles (no W-2, multiple properties), portfolio and hard-money lenders extend to 600-660 FICO at premium rates.
What reserves are required for investment property?
Fannie Mae requires 6 months of PITI in reserves on the subject investment property, plus 2 months of PITI on your primary residence. If you own additional financed rental properties, add 2 months of PITI per property. On a $300K investment with $2,200 PITI plus a $2,800 primary PITI, the reserve requirement is $13,200 ($2,200 x 6) plus $5,600 ($2,800 x 2), or $18,800. This is in addition to the down payment and closing costs. Reserves can come from checking, savings, stocks (60-70 percent of value), or vested retirement accounts (60 percent of value).
What is a DSCR loan and when does it make sense?
Debt-Service-Coverage-Ratio loans qualify the borrower based on the property's net rental income covering the mortgage payment, rather than on the borrower's personal income. The DSCR is calculated as monthly market rent divided by monthly PITIA (principal, interest, tax, insurance, association). Most DSCR programs require a DSCR of 1.00-1.25 (meaning rent equals or exceeds the payment by 0-25 percent). DSCR loans make sense when (a) personal income cannot support additional conventional financing under DTI limits, (b) the borrower owns 10+ rental properties (the conventional limit), or (c) the borrower wants to scale a portfolio quickly without W-2 documentation drag.
How many investment properties can I finance conventionally?
Per the Fannie Mae 5-10 Properties policy, an investor can have up to 10 financed properties (including primary residence) on conventional terms. Properties 5-10 carry additional pricing adjustments (typically 0.75-1.50 points), tighter reserve requirements (6 months PITI per property), and 720+ FICO requirements. Beyond 10 financed properties, investors move to portfolio lenders, DSCR loans, or commercial multifamily financing.
Is FHA an option for investment property?
Only as house hacking. FHA requires the borrower to occupy one unit as a principal residence. On a 2-4 unit property purchase, FHA at 3.5 percent down is allowed if the buyer lives in one unit and rents the others. After 12 months of owner occupancy, the buyer can move out and convert the property to pure rental without violating the original FHA terms. This is one of the few ways to enter rental property investing with 3.5 percent down. The FHA self-sufficiency test applies to 3-4 unit purchases (rent on the rented units must cover the mortgage payment after vacancy adjustment).