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If you're planning to buy an income-generating property, shopping around to find the best mortgage rates can help you make the most of your investment.
Check out today's investment property mortgage rates and learn how these types of rates are determined.
Current investment property mortgage rates
Mortgage rates have trended down over the last few months, with 30-year mortgage rates averaging 5.74% in September, according to Zillow data. This is down 31 basis points from the month before. But in October, rates have spiked back up, and 30-year rates are now in the mid-6% range.
Most major forecasts expect mortgage rates to go down next year. If you're looking to buy an investment property, you may want to hold off until 2025, or buy now and plan on refinancing when rates go down.
As you explore rates, keep in mind that investment property mortgage rates are generally higher than mortgage rates on primary residences or second homes.
See how investment property mortgage rates compare
Check out today's mortgage rates to see how rates are trending. These rates are for all mortgages, not just investment property mortgages.
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Investment property definition
When using a mortgage to buy a property, buyers can choose from three types of occupancy: primary residence, second home, and investment property.
Your primary residence is your home, and the place where you live for the majority of the year. A second home is a home you occupy only some of the time, such as a vacation home.
Investment properties are properties purchased solely for the purpose of generating income, often by renting it out on a short- or long-term basis. Investment properties are not owner-occupied, meaning the owner doesn't live in the home.
Key differences from owner-occupied mortgages
Here's what you can expect when getting an investment property mortgage:
- Higher interest rates: Because these mortgages are considered riskier by lenders, you'll pay more in interest to get one.
- Larger down payment requirements: Expect to have to put down between 15% to 25% at a minimum, depending on the type of property.
- Stricter qualification standards: Lenders may require higher credit scores for investment property loans. And if you have loans on other properties, you may have a harder time keeping your debt-to-income ratio acceptably low.
- Factoring in rental income: If you're buying a home to be rented out, you may be able to use a portion of the income generated by that unit to help you qualify for the mortgage.
Overall, investment property mortgages are typically more expensive and harder to qualify for than mortgages for borrowers who are buying a property they intend to live in since they're considered riskier loans.
Why are investment property mortgages riskier? If the borrower encounters a financial hardship, they're more likely to make sure the costs on their primary residence are paid first. Investment properties also require a lot of work and money to maintain. If the owner has a hard time finding tenants or ends up putting more money into their investment than they're getting out of it, they could decide to walk away.
Factors influencing your investment property mortgage rate
Property type
Details of the property you're purchasing can have an impact on your rate. For example, if you're buying a multi-unit building rather than a single residence, you may be charged a higher interest rate.
Location
Some states have higher average rates than others. See how mortgage rates trend in your state to get a better idea of what you could pay.
Down payment amount
Putting more down than the minimum requirement can help lower your mortgage rate.
"A homebuyer looking to purchase an investment property should account for a 20% to 25% down payment to get a competitive rate," says Raul Hernandez, a mortgage broker with Competitive Home Lending.
Loan term
Shorter loan terms have lower rates compared to longer terms. For example, you'll pay less on a 15-year mortgage than a 30-year mortgage.
Your financial profile
The better your overall financial profile, the better the rate you'll likely get.
To help keep your rate as low as possible, you could work on boosting your credit score, improving your DTI, and saving for a larger down payment.
Hernandez says its possible to qualify for an investment property mortgage with a credit score as low as 620. But those with lower scores will need to make a larger down payment and pay more in interest, he says.
Where to find investment property lenders
Many local and nationwide mortgage lenders will lend to investment property buyers and owners. For example, Chase, one of our best mortgage lenders, offers investment property mortgages. If there's a lender you're interested in, give them a call or look on their website to see if they have these types of loans.
If you're looking for an investment property loan lender with more flexible requirements, you might want to explore non-QM loan lenders.
Local banks and credit unions are often a good choice if you want more personalized help, since they're smaller. They may also be able to offer better rates, but be sure to shop around.
If you don't want to do the shopping around yourself, you can enlist the services of a mortgage broker. Brokers will help you compare multiple lenders at once so you can easily shop rates and find the right loan for your needs.
Investment property mortgage FAQs
Average 30-year mortgage rates have been in the mid-6% range in recent weeks. Investment property mortgage rates will be a bit higher than this.
Yes, rates are generally higher for investment property mortgages than for mortgages used on other types of properties. This is because these mortgages are riskier for lenders.
The amount you'll need to purchase an investment property can vary depending on your lender — but typically you'll need a minimum of 15% down for a single unit, and 25% down for a two to four-unit property.
You'll need a larger down payment to qualify for an investment property mortgage than you would with a primary residence mortgage. Keeping your DTI to an acceptable level may also be more difficult, since you'll be adding a new mortgage to any existing loans you're already paying.
If you're having trouble coming up with a sufficient down payment for your investment property purchase, you might consider tapping into the money you have in your current home with a home equity loan or HELOC.
Yes, you'll need to use a conventional mortgage for an investment property unless you're buying a multi-unit residence that you intend to live in, in which case you may be able to use a government-backed loan.
Your closing costs will depends on your lender's fees and the other costs you incur in the process of getting a mortgage. Depending on the details of your situation, these costs may be comparable to a non-investment property loan.
What's a Zestimate?
