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Best Investment Property Mortgage Rates
Here’s what you really want to know: The best investment property mortgage rates for online applications is from Rocket Mortgage, which we go into more detail in a bit. We’ll also talk about the best investment property mortgage rates for pre-approval (Better Mortgage) and the best investment property mortgage rates for low rates (SoFi).
In this post, we’ll explore what is an investment property mortgage; investment loan pros and cons; the tax benefits of investment properties; and why interest rates are higher on investment and rental properties. We also go into more detail about the best mortgage rates for your specific needs.
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We have a rating model called the SimpleScore that evaluates lenders so you can assess the best financial products for you by comparing apples to apples. We have five criteria that we look at: perks; hard and soft credit checks; customer satisfaction; product variety; and fees. We go into more detail about this scoring model at the bottom of this post and how it can impact your decision.
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Current mortgage rates
According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year Fixed Rate | 3.020% | 3.230% |
| 30-Year FHA Rate | 2.590% | 3.480% |
| 30-Year VA Rate | 2.670% | 2.870% |
| 30-Year Jumbo Rate | 3.030% | 3.140% |
| 20-Year Fixed Rate | 2.820% | 3.010% |
| 15-Year Fixed Rate | 2.310% | 2.600% |
| 15-Year Fixed Jumbo Rate | 2.310% | 2.390% |
| 5/1 ARM Rate | 2.790% | 3.920% |
| 7/1 ARM Rate | 3.030% | 3.740% |
| 7/1 ARM Jumbo Rate | 3.330% | 3.560% |
| 10/1 ARM Rate | 3.260% | 3.920% |
Rates data as of 9/15/2021
Best investment property mortgage rates of 2021
- Rocket Mortgage – Best for online application
- Better Mortgage – Best for preapproval
- New American Funding – Best for loan options
- Navy Federal Credit Union – Best for service members
- PNC Bank – Best for online tools
- SoFi – Best for low rates
- Guaranteed Rate – Best for customer satisfaction
Best investment property lenders of 2021
| Lender | 30 Year Fixed APR | Eligibility Criteria | Key Benefits |
|---|---|---|---|
| Rocket Mortgage | 3.28% | 620 | Flexible options and easy application |
| Better Mortgage | Varies | 620 | Streamlined application and no commission fees |
| New American Funding | 2.81% | 620 | Wide variety of mortgage types |
| Navy Federal Credit Union | 2.34% | varies | Low rates and no prepayment penalties |
| PNC Bank | Varies | 620 | Online savings tools and resources |
| SoFi | Varies | 660 | Easy application and competitive pricing |
| Guaranteed Rate | Varies | 580 | Neighborhood data and local experts |
Best for online application – Rocket Mortgage
Rocket Mortgage takes the stress out of applying for a mortgage with a quick and easy online application process.
It offers a variety of different investment property mortgage options, including fixed mortgages, adjustable mortgages, FHA and VA loans. Its online application makes it easy to start an investment journey in real estate, no matter what kind of mortgage you need.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
Best for preapproval – Better Mortgage Company
Borrowers can apply entirely online and can be preapproved in as little as three minutes.
Better Mortgage prides itself on reinventing the mortgage industry to streamline the application process, eliminating unnecessary fees and extras steps so that the mortgage application process is as painless as possible. The lender features no commission, instant loan estimates and a simple, transparent application process.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
Best for loan options – New American Funding
If you’re looking for options when it comes to an investment property mortgage, New American Funding won’t disappoint
This lender offers a wide variety of different types of home loans to fit your needs. These include 30-year fixed-rate mortgages, 15-year fixed-rate mortgages, VA loans, FHA loans, conventional loans, and others. This gives you the option to tailor your loan to fit your specific needs, depending on your age, income and personal history.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
Best for service members – Navy Federal Credit Union
Navy Federal Credit Union is a not-for-profit credit union that serves members of the armed forces, veterans and their families, including individuals serving with the Army, Marine Corps, Navy, Air Force and Coast Guard.
This lender offers 15-year conventional fixed-rate mortgages for investment properties. The mortgage requires a 25% down payment, which may be higher than some other lenders. Investment property mortgages from Navy Federal Credit Union feature no prepayment penalties, so you can pay off your loan any time you like. And if you already have an existing investment property mortgage, you may be eligible to refinance through this lender.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
Best for customer service – PNC Bank
PNC Bank offers a variety of investment property mortgages, including fixed-rate mortgages, adjustable-rate mortgages, jumbo loans, FHA loans, VA loans and specialized loans.
Fixed-rate and adjustable-rate mortgages have terms between 10 and 30 years, with down payments as low as 3% and loan amounts up to $510,400. Jumbo loans have terms between 15 and 30 years along with a variety of different payment options. PNC also offers excellent customer service, with a variety of educational and savings tools customers can use to understand their finances, stick to a budget and save money over time.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
Best for low rates – SoFi
While SoFi may have made a name for itself through its student loan refinancing services, this lender also offers a variety of other products, including investment property mortgages.
SoFi features extremely competitive rates, along with the option to prequalify and an easy, stress-free application process. Depending on your financial situation, you may be able to qualify for a mortgage with as little as 10% down. SoFi offers 30-year, 20-year, 15-year and 10-year fixed mortgages.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
Best for customer satisfaction – Guaranteed Rate
Guaranteed Rate offers a variety of different kinds of mortgages, including 30-year fixed rates mortgages, 15-year fixed rate mortgages, adjustable rate mortgages, jumbo loans, FHA loans, VA home loans and interest only mortgages.
Guaranteed Rate is a good choice for an investment property mortgage if you’re looking for a lender with excellent customer satisfaction ratings. The lender claims that 96% of customers would recommend Guaranteed Rate to their friends and family. Guaranteed Rate also features real-time neighborhood data, trusted local experts, and borrowers can apply online or in person.
Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on investment property mortgage loans, please visit the lender site.
What is an investment property mortgage?
Investment property mortgages are mortgages that individuals take out on properties that they plan to rent rather than live in. These residences are known as investment properties. Investment property mortgages tend to have higher interest rates than traditional mortgages, and they may have stricter eligibility requirements. This is because investment properties present more of a risk to potential lenders, since property owners are more likely to stop payments on an investment property mortgage than on the mortgage for the house that they actually live in. Property owners may also have trouble paying an investment property mortgage if they struggle to find tenants to rent the house or apartment.
Investment loan pros and cons
There are a number of good reasons to buy investment property with an investment loan, and there are also some reasons you may want to think twice about doing so.
Some of the pros for buying investment property with an investment loan include:
- Flexible lending parameters for the size and type of property — You can get an investment loan for different types and sizes of properties. If you want to buy an entire apartment building and can meet the requirements for approval, for example, you can. That’s not always possible with a regular mortgage loan, which are generally geared toward single-family houses or duplexes. In other words, these loans open up more options for the types of property you purchase.
- Option to take out multiple loans — You can easily have two, three or four investment property loans at once if a lender will approve you. However, you can’t usually have multiple purchase loans in your name for single-family home purchases that you’d be expected to live in. The only way this is possible is with an investment property loan.
- Potential profit from the investment — Without a property loan, you’d have a hard time getting funding for an investment property. You’d probably have to pay cash for your investment. With the help of an investment loan, you have the option to buy an investment property and make a profit from the rental, leasing or sale of your investment property.
There are also a few cons to investment property loans. These include:
- Stricter lending parameters — There’s a higher risk of default with investment loans, so you’ll have to meet the strict lending requirements for an investment loan. That could mean a higher credit score, more cash in your reserves or a number of other requirements.
- Higher interest rates — Investment loans come with higher interest rates due to the increased risk to the lender. In turn, you’ll pay more on the interest for an investment property loan. This isn’t ideal for maximizing your profits.
- Higher down payment — Most investment property loans require you to put down a hefty sum of cash for your loan. While you may be able to get away with 3.5% on some home purchase loans, you’ll likely have to cough up 25% to 30% or more to obtain an investment property loan. This can put these loans out of reach for some buyers.
The tax benefits of investment properties
Investment property owners could help you reap big benefits during tax season. The IRS notes few deductions that could add up in your favor if you own an investment property or two, including rental property repairs, maintenance, depreciation and property tax. You may also qualify for write-offs on necessary expenses for your property, such as advertising or listings, insurance and utilities. Writing off these, and other investment property expenses, could total up to $25,000 in tax deductions if you’re lucky.
Investment property owners may also deduct travel expenses that were paid to handle repairs. You’ll be able to deduct gas, meals, shipping and even tips paid on meals or services. Just make sure all travel expenses meet the criteria outlined in the Travel, Gift and Car Expenses outlined by the IRS.
You’ll need a few documents to accurately document your deductions. Be sure to keep copies of receipts from any upkeep or repairs, and keep all financial records of your rental income, too. The more paperwork you have, the better — just in case you’re audited.
The IRS does note, however, that tax deductions don’t apply to rental improvements or upgrades. You’ll see a return on your investment through the depreciation deduction instead, or you can use Form 4562 to file for any exceptions.
If you face any rental losses, you can also deduct up to $25,000 when it’s tax time. You’ll just need to own 10% of the property and handle the majority of the rental management, such as new tenants and leases.
Why are interest rates higher on investment or rental properties?
Interest rates are higher on investment properties because the risk of default is greater. There’s a gamble when buying an investment property — you’re banking on it making enough money to cover the costs. That doesn’t always happen, and buyers can’t always afford to carry the properties long term if they remain unoccupied or unsold (in the case of flips), which means you’ll pay more for the privilege of taking out this type of loan.
This includes a higher rate on your loan. Owner-occupied properties have a much lower risk of default, which is why it’s safer for lenders to offer lower interest rates. Lower risk equals lower rate. Higher risk equals higher rate.
How should I choose the right investment property mortgage?
Finding the right investment property mortgage will depend on your financial situation and what loans you qualify for. In general, you should look for mortgages with low interest rates and few fees. If you plan on buying a multi-unit property and living in one of the units, you may also qualify for an FHA loan or a VA loan, as long as the property has a maximum of four units.
Do you have to put 20% down on an investment property?
No — you won’t have to put 20% on an investment property. You’ll probably have to put down more than 20% to get your loan approved. If you’re buying a single-family residence as an investment, you may be able to find a lender that lets you put down 15% to 20%, but if you’re trying to buy a multi-family unit, expect to cough up at least 25% to 30% as a down payment to get approved.
This is again because the risk to the lender is greater on certain types of investment properties. They aren’t always as quick to sell or be rented out as many investors would hope, making it easy to get buried under an investment you can’t afford.
Other financing for investment properties
Conventional loans
If you’re buying a single-family home as an investment, you may be able to get a conventional loan to fund the purchase of the property. You’ll likely have to put more down to obtain a conventional loan on an investment property, though, and your debt-to-income ratio will also factor in like it did when you purchased your home. Keep that in mind when you’re considering this route.
Fix or flip loans
If you’re planning to flip a home after updating and rehabbing it, you may be able to get a fix-and-flip loan. This is a short-term loan that allows you to fund renovations before putting the home back on the market as quickly as possible. This type of loan isn’t appropriate for buyers who want to purchase and then lease out apartments or duplexes. It’s limited to flippers who buy cheap and sell high after fixing up the property. These are basically hard money loans that are secured by the property, and specialized lenders or some crowd-funding platforms offer them.
Use your home equity
Do you own a home with lots of equity? You can use the equity in your home as a source of funding for an investment property. Most lenders will let you borrow up to 80% of your equity, so if you’ve paid down your home significantly and want to purchase an investment property with a price tag that fits in that range, this is an option. You can tap into your equity via a cash-out refinance or home equity loan, which most traditional lenders offer.
Too long, didn’t read?
Investment properties can be a great way to diversify your investment portfolio and earn rental income. However, investment property mortgages tend to have higher rates and stricter requirements than traditional mortgages. If you plan on applying for an investment property mortgage, it’s a good idea to have a sizable down payment saved up and to be as financially stable as possible.
We welcome your feedback on this article and would love to hear about your experience with the investment property mortgages we recommend. Contact us at inquiries@thesimpledollar.com with comments or questions.
Keep Reading
Methodology
We’ve created the SimpleScore to help you objectively compare products and services here at The Simple Dollar.
Our editorial team:
- Identifies five factors to compare across each brand
- Determines the rating criteria for each factor
- Calculate an average of those five factor scores to get one SimpleScore
We break down each of these five factors and their rating criteria for our review of the best mortgage companies.
Why do some brands have different SimpleScores on different pages?
Some brands like Bank of America, Wells Fargo, and Chase have different SimpleScores because they offer more than one financial solution — like home loans, auto loans, personal loans and more.
For instance, in our Bank of America Mortgage Review, we give the company a 3.8 out 5 based on our five rating factors for mortgages. In our Bank of America Auto Loans Review, we give the company a 4.4 out of 5 based on our rating factors for auto loans. By tailoring our SimpleScore to each financial solution, we’re able to give you a more accurate view of a brand’s services and how it compares to competitors’ services.
Perks
Mortgage lending companies that provide more perks receive a higher score from us.
Hard/Soft credit checks
We know that credit checks affect your score –– that’s why we favor companies that offer soft credit checks or hard credit checks when you want to see your pre-approval rates.
Customer satisfaction
We use the J.D. Power 2019 Mortgage Origination Satisfaction Study℠ to find out how customers rate their experience with each company. (If a company is not included in J.D. Power’s study, we skip this rating factor and average the remaining factor scores.)
Product variety
Mortgage lenders that offer more products for their home loans are given higher scores.
Fees
Fees can add up fast. Companies that don’t require as many fees for your home loan receive a higher score with us.
Reviewed by
Angelica Leicht
Mortgage EditorAngelica Leicht is an editor at The Simple Dollar who specializes in mortgages, mortgage refinancing, home equity loans, and HELOCs. She is a former contributing editor to Interest.com and PersonalLoans.org.
