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How To Get A Mortgage For A Rental Property

Getting a mortgage doesn't sound like a bad option if you're considering buying a rental property but can't afford the extra expenses.

As per recent stats, there has been a heavy demand for mortgages in real estate. According to Vision Lending, the average mortgage interest rates for rental properties typically range from 150 bps to 300 bps, which makes the market still hot for renters.

While there are multiple ways to get a mortgage for rental properties, your ultimate goal should be to get the lowest mortgage rates possible.

This article will discuss all the ins and outs of a rental property mortgage and how to make it a win-win for you.

How do I get a mortgage for a rental property approved?

Multiple factors determine whether the mortgage lender approves or rejects your loan application. Here are the factors that can make or break the approval by the lender.

Four tips to get a mortgage for a rental property

1. Check Your Credit Score.

A good credit score is the most critical factor in determining whether lenders will consider and approve your loan application for rental property over others. The lower your score at any point in time, the worse it is for you when applying for loans with lenders.

Therefore, check your credit score and try to build your credit score first to increase the chances of getting the mortgage application approved.

A recent study by Forbes calls out homeowners with up to a credit score of 620 and debt to income ratio in the range of 35-45% to apply for a mortgage for a rental property.

2. Make a 20 percent down payment.

The down payment is the amount you must pay out of pocket to purchase your home. Whether you want to make a sizeable down payment or a small one, it will affect the mortgage rate you receive from the lender.

Also, the size of your down payment impacts how much money you'll need for closing costs and other items expenses with owning a home. Lenders typically require 20 percent as their minimum requirement for most loans, while others may also let borrowers skip this amount in exchange for additional collateral.

However, paying at least 20% of the down payment will allow you to reduce the monthly payments and determine how much you will be required to pay in mortgage insurance. This coverage protects the lender against loss if you default on monthly loan payments.

3. Calculate all property costs

When considering getting a mortgage, consider the total cost of owning the property. This will also require you to include taxes, insurance, and maintenance in your monthly expenses, along with the purchase price of your home.

Therefore, buying rental properties is a little intricate process as it involves multiple expenses required to purchase a rental property. For example, if unexpected repairs need fixing on your rental unit, add these costs to your principal fees instead of interest.

However, many buyers consider the two percent rule that says a homeowner is eligible to ask for 2% of the total home price in rent, depending on the property.

4. Calculate mortgage affordability

Thanks to mortgage affordability, you can now determine whether the mortgage is for you or not. At the same time, there are many different ways to calculate your affordability for a rental property mortgage, considering all the costs associated with owning that property.

However, the best way to determine mortgage affordability is by comparing your monthly cash flow after all expenses with how much money you need each month to live comfortably.

5. Buy a multi-unit property

If you have a single-family home, another good thing is to live in one unit and rent the other units to friends or family. This is an excellent option to keep your investment property off the market for an extended time.

However, you can also earn a side income by living in one unit while renting out the others. Thanks to Airbnb, tenants like you can easily list their spaces as apartments or condos.

6. Be a realtor

Surprisingly, there are plenty of opportunities for people looking for extra income with little work. In other words, renting out rooms within someone else's home is a profitable way to make money.

7. Consider house hacking

House hacking is a term used to describe the process of buying real estate for investment purposes. In this case, you'd be investing in a rental property instead of your own home or apartment.

To do this, it's essential to understand how house hacking works and its pros and cons before finding your feet in this market.

8. Revisit your finances regularly

Before looking for new rental properties, make sure your finances are in order. As a golden rule, create a financial plan that includes two mortgages: one for the primary residence and one for any investment properties.

However, ensure you have enough cash reserves to cover mortgages and other expenses until the first property is paid off. This will help ensure that if anything goes wrong with either one of these loans, there won't be any unexpected problems with closing dates or late fees.

9. Don't add more to your debt.

If possible, try not to add more debt to what's already on your balance sheet. Instead, focus on making sure all bills get paid before you invest in any property or try to refinance student loans into a mortgage loan from a responsible lender.


Here is our detailed guide on all the ins and outs of getting a mortgage for a rental property.

Remember, it's not just about buying a property but finding the right one for your needs and finances.

If you're looking for a fair property deal that makes you more money in the long run, Gosen Properties is the perfect option for you.

Find your nearest area's latest property deals with expert help and guidance.

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