Investor and Multifamily Loans
What Down Payment and Credit Score Do I Need to Buy a Rental Property?
The short answer
For a conventional loan sold to Fannie Mae or Freddie Mac, a 1-unit rental purchase allows up to 85% loan-to-value (at least 15% down) and a 2–4 unit rental up to 75% (at least 25% down). There is no single credit score that applies everywhere; lenders set their own minimums, and your score affects pricing and terms.
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The short answer
For most rental purchases of one to four units, the starting point is a conventional loan that follows Fannie Mae or Freddie Mac rules. Under those rules, the maximum loan-to-value for an investment property purchase is 85% for a single unit and 75% for two to four units. Put another way, you would need at least 15% down on a single-unit rental and at least 25% down on a two- to four-unit rental.
Those are ceilings, not promises. The amount you actually need depends on the automated underwriting result, your credit, your other debts, the property, and the lender’s own requirements, which can be stricter than the agency rules.
Credit works the same way. Fannie Mae’s Selling Guide does not set a minimum credit score for loans run through its automated system, Desktop Underwriter, but many lenders set their own minimums. Your score also affects pricing and how much you can borrow, so there is no single number that answers the question for everyone.
How a rental differs from a home you live in
Lenders treat a home you will occupy differently from one you will rent out. A principal residence, including a two- to four-unit building where you live in one unit, may qualify for lower down payment options. A non-owner-occupied rental usually costs more to finance and asks more of you.
| Topic | Home you live in | Conventional rental (1–4 units) |
|---|---|---|
| Down payment | Lower options exist for eligible buyers | At least 15% (1 unit) or 25% (2–4 units) under agency limits |
| Pricing | Standard pricing for your profile | Fannie Mae applies an added price adjustment to every investment property loan |
| Underwriting | Automated or, in some programs, manual | Must receive an approve or accept result from automated underwriting |
| Reserves | Depends on the loan | Fannie Mae requires six months for an investment property purchase through its automated system |
| Rental income | In a 2–4 unit home you live in, rent from the other units may count, with limits | Projected or actual rent can be counted, with limits |
The occupancy you state on the application matters. Saying you will live in a property you plan to rent is misrepresentation, so describe your plans accurately from the start.
Your personal income still counts
A conventional rental loan is a full-documentation loan. The lender reviews your pay stubs, W-2s or tax returns, your existing debts and your assets, then calculates a debt-to-income ratio that includes the new property. The rent helps, but it rarely carries the whole loan on its own.
If you are self-employed or already own several properties, the tax return picture can be more complicated, because depreciation and expenses on Schedule E change how much income a lender can count. A tax professional can explain your returns; a loan originator can show how a lender will read them.
How lenders count the rent
For a purchase, Fannie Mae’s guidelines use the gross monthly rent from a lease or from an appraiser’s rent schedule, Form 1007 for a single unit or Form 1025 for two to four units. The lender takes 75% of that rent, which leaves room for vacancy and upkeep, then subtracts the property’s full monthly payment: principal, interest, taxes, insurance and any association dues.
- Hypothetical, round numbers: market rent of $4,000 a month and a full payment of $3,200
- 75% of $4,000 is $3,000, which is $200 short of the $3,200 payment
- That $200 shortfall is added to your monthly debts when the lender figures your ratio
Landlord history matters too. Under Fannie Mae’s guidelines, if you have less than 12 months of property management experience, positive rental income can only offset the property’s own payment rather than add to your qualifying income.
Reserves: cash left after closing
Reserves are eligible financial assets you have available after paying your down payment and closing costs. For an investment property loan evaluated through Fannie Mae’s Desktop Underwriter® (DU), the minimum is generally six months of the property’s qualifying housing payment, although additional reserves may be required. Borrowers with other financed properties may also need reserves equal to 2%, 4% or 6% of the outstanding mortgage and HELOC balances on certain other properties, depending on their total number of financed properties. The subject property and primary residence are excluded from that balance calculation. Requirements differ for other loan programs.
Lenders may ask for more, and retirement or investment accounts may count at less than face value. Plan for reserves alongside the down payment instead of treating them as an afterthought.
When a different loan may fit better
Conventional financing is not the only path. A DSCR loan qualifies mainly on the property’s rent compared with its payment and usually does not use your personal income, but it has its own down payment, credit, reserve and pricing rules that vary by lender. A bank portfolio loan may suit an unusual property. A building with five or more units moves into commercial multifamily lending, which follows different rules again.
Each program should be judged on its own terms. A requirement from one does not carry over to another.
Talk it through with Jack Terrell
If you are weighing a rental purchase anywhere in California, Jack Terrell, a mortgage broker and loan originator with California Mortgage Advisors, Inc. in San Rafael, can walk through how your income, credit and savings line up with conventional and other options, and compare programs from more than one lender. A conversation is a good place to start before you make an offer.
This article provides general information about real estate financing in California. It is not a loan offer, pre-approval, commitment to lend, or personalized legal, tax, or financial advice. Programs, availability, terms, and eligibility requirements vary by lender, property, and borrower and may change. Review the disclosures and loan documents applicable to your transaction and consult a qualified professional for tax, legal, or estate-planning guidance.
Jack Terrell, Mortgage Broker and Loan Originator | NMLS #103232 | CA DRE #00992181
California Mortgage Advisors, Inc. | NMLS #1825 | CA DRE #01170868
Licensed by the California Department of Real Estate.
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