Rental property math lives and dies on the debt attached to it. A $310,000 triplex that cash flows $400 a month at 7.25% stops working the moment the same balance resets to 9.5%. The building didn’t change. The financing did.
That’s why the useful question isn’t “what’s the lowest advertised rate?” It’s which structure fits the property, your exit timeline, and what your tax return actually shows. Four loan families cover most rental purchases, and a few niche programs handle the edge cases.
Conventional Loans: Cheapest Money, Most Rules
Loans backed by Fannie Mae and Freddie Mac are still the least expensive way to finance a one-to-four unit rental. You’ll typically need 15% down for a single-family investment purchase, 25% for a two-to-four unit, a 620 score or better, documented income, and cash reserves.
The reserve rules are where new investors get surprised. Fannie caps you at 10 financed properties, and once you’re past four, lenders want six months of payments on every mortgage you hold. Own five rentals and you may need to show reserves on all five plus the new one.
Where conventional loans stop working
- You’ve hit the 10-property ceiling and need an eleventh loan.
- Your debt-to-income ratio looks brutal on paper because of depreciation and write-offs.
- The property is a non-warrantable condo, needs substantial rehab, or sits in a declining market.
- You need to close in three weeks, not 45 days.
If you fit inside the box, conventional is hard to beat. If you don’t, the next category exists precisely because you don’t.
DSCR Loans: The Property Qualifies, Not You
Debt service coverage ratio loans ignore your personal income entirely. The lender takes the market rent, divides it by the full monthly payment, and approves the deal if the number clears. Rent of $2,400 against an $1,800 payment is a 1.33 DSCR.
Most DSCR lenders want 1.20 to 1.25, though some will go to 1.0 with a higher rate or a larger down payment. Expect 20-25% down, rates roughly one to two points above conventional, 30-year fixed terms (sometimes 40-year amortization), and LLC vesting without a hitch. No tax returns, no pay stubs, no employment verification.
The trade-off shows up in the fine print. Prepayment penalties are standard, often a 3-2-1 structure where you pay 3% of the balance to exit in year one, 2% in year two, 1% in year three. If you plan to refinance after a rehab or a rate drop, price that penalty into the deal before you sign.
DSCR is the workhorse for self-employed investors, anyone scaling past ten properties, and buyers whose tax returns tell a story lenders don’t want to hear.
House Hacking: Owner-Occupied Loans on Small Multifamily
The cheapest rental financing in America is a loan you live in. Buy a duplex, live in one unit, rent the other, and you can put down as little as 3.5% with an FHA loan or 5% with a conventional loan on a two-unit primary residence.
The rental income counts too. Lenders typically credit 75% of the projected rent from the units you don’t occupy toward your qualifying income, which can offset a large chunk of the new payment. It’s worth understanding how duplex mortgage financing treats rental income before you tour properties, because the down payment and reserve rules shift depending on whether you go FHA, conventional, or VA.
Owner-occupied financing only works if you actually move in, usually within 60 days, and stay for at least a year. Lenders do check.
Commercial and Portfolio Loans for Five Units and Up
Cross into five units, mixed-use, or a property your bank considers too unusual for agency guidelines, and you’re in commercial territory. These loans live on the bank’s balance sheet rather than Fannie’s.
Typical terms: 25-35% down, a five-to-ten year fixed period followed by a reset or balloon, 25-30 year amortization, a 1.25 DSCR floor, and a personal guarantee. Underwriting looks at global cash flow across your whole portfolio, which helps experienced investors and frustrates first-timers. Closings run 45-60 days.
Because every lender sets its own rules, comparison shopping matters more here than anywhere else. A practical guide to qualifying and closing a commercial mortgage is worth reading before you start collecting term sheets, since loan-to-value, recourse, and prepayment language vary wildly from one bank to the next.
Short-Term Rental Financing Is Its Own Animal
Airbnb and VRBO properties sit in a strange space. Conventional lenders will finance them, but many won’t count projected nightly revenue as income, so you qualify on your W-2 and the property’s long-term rental estimate instead. That gap kills a lot of deals.
Some portfolio and DSCR lenders will underwrite short-term rental income directly, often using third-party data on comparable nightly rates and occupancy. Rates run higher and reserves run deeper because the income stream is less predictable. If the property doubles as a place you’ll use, look at vacation home mortgage options and down payment requirements, since second-home loans sometimes beat investor pricing on the same address.
Bridge and Hard Money: Short-Term Fuel, Not a Destination
Hard money exists for speed and distressed properties. Expect 10-13% interest, 2-4 points at closing, 12-18 month terms, and 65-75% loan-to-value against the after-repair value. You’ll get funded in a week or two and pay for the privilege.
Used well, a bridge loan buys a foreclosure, funds the rehab, and gets refinanced into a DSCR loan once the property is stabilized and reappraised. Used badly, it becomes a treadmill of extension fees. Have the exit loan roughly pre-approved before you close.
Buying From Abroad? Ask About Foreign National Programs
Investors without a US credit history or green card aren’t locked out of American rental property. Foreign national loan programs approve on the property and your home-country profile, typically requiring 30% or more down, six to twelve months of reserves, and a slightly higher rate. A foreign national mortgage without a green card is a realistic path for overseas buyers, and a small group of lenders specializes in it.
Match the Loan to Your Exit, Then Pick the Lender
The loan type matters less than the pairing. A three-year flip plan inside a 3-2-1 prepayment penalty is a bad trade, even at a great rate. A 30-year fixed DSCR loan on a property you’ll sell in 18 months wastes money on closing costs you’ll never recoup.
Sketch the exit first. Holding for a decade? Take the lowest long-term rate you can find, even if qualification is harder. Refinancing after stabilization? Accept the higher bridge cost and negotiate the penalty down. Building to 20 doors? Start with conventional, then move to DSCR and portfolio loans as your tax returns stop helping you.
Then pick the lender, not just the rate. Two quotes with identical pricing can differ on reserves, appraisal timelines, and how they treat rental income from a lease you haven’t signed yet. A walkthrough of how to choose the right mortgage in a shifting market is a solid gut check on what to compare side by side. Ask every lender the same three questions: what’s the reserve requirement, what’s the prepayment penalty, and how many financed properties will you allow?
Get written answers on all three before you pay for an appraisal. Those numbers shape your return far more than a quarter-point on the rate.