Rental Property Mortgage Financing Guide

This article was contributed by Gwen Wachowski, Mortgage Specialist at VirtuaLending

Small homes Shutterstock_782565859I’ve been getting a number of inquiries of some properties on the unique side lately, so I thought I would shed some light on property types and how they impact financing.

While it’s possible to find financing for almost any property, certain programs do have their own restrictions and things to look out for.

SFR – Single Family Residences

  • Typical home, accepted on almost all loan programs

ADU – Additional Dwelling Units

  • Income from ADUs can now be included in the client’s debt-to-income ratio on conventional and FHA (*75% of rental income), and for the Debt Service ratio on DSCR loans (*100% of rental income)
  • FHA 203k programs available to build an ADU
  • Hard money/rehab loans available to build ADUs on investment properties

Duplexes, Triplexes, and Quadruplexes

  • Up to 2 units (duplexes) are eligible for the FHA Down Payment Assistance Program, but 3-4 units are not eligible
  • On typical FHA programs – 3-4 unit properties must pass the self-sufficiency rule (*regardless of client’s income, 75% of projected rental income on non-occupied units must be equal to or higher than the monthly mortgage payment)
  • 75% of rental income on non-occupied units can be counted towards client’s qualifying income

Condos – Warrantable & Non-Warrantable

  • To use an FHA program on properties zoned as condos – HOA must be FHA approved
  • Getting the HOA contact information when first entering escrow is extremely helpful – condo docs showing sufficient reserves, and if condos are warrantable or non-warrantable (condo/HOA with judgements, deferred maintenance, high investor concentration, etc.)

Leasehold Properties

  • Leasehold properties are properties on land that is owned by another party other that leases out the property to homeowners
  • Leaseholds are not automatically ineligible, but are required to meet additional criteria
  • CANNOT be on Native American Reservations – these properties are almost entirely ineligible for all programs besides programs specifically made for Native families/clients

5-8 Unit Residential & Mixed-Use

  • Not eligible for conventional/FHA programs
  • DSCR (investor only) programs available with slightly tighter guidelines – commercial appraisal required, minimum 25%-30% down payment, buyers must have at least 1 other investment property

Mobile/Manufactured & Modular Homes

  • Must be affixed to the land/foundation for Conventional or FHA loans
  • Mobile homes must be built after the year 1976
  • Not eligible for Non-QM loans – bank statement only/DSCR

Commercial Properties

  • Commercial financing largely depends on properties themselves – typically higher down payment percentage (~50%), and cap rate (net operating income/value)
  • Property type also matters – retail, office, multifamily buildings (over 8+ units). Properties that rely on actual business income instead of tenant rent (daycares, agriculture, laundromats, etc.) fit more for SBA (Small Business Administration) loan programs that finance the real estate as part of the funding

Rural Properties

  • Rural zoning may not be an issue for conventional or FHA financing; however properties zoned as agricultural typically require an entirely different loan program – USDA program
  • Not eligible for Non-QM – bank statement only and DSCR
  • Some properties zoned as rural may have further comps (5+ miles away), gravel roads, outbuildings, etc.

Today’s rates for common loan types on 30 year terms:

Bank Statement: 7.625%
DSCR: 7.750%
Stated: 10.000%
Conventional: 7.875%
FHA: 7.125%
VA: 7.125%
Jumbo: 6.625%

*These quotes were generated assuming perfect qualifying factors. If you have any questions regarding your clients’ scenario, please reach out to me.


Gwen Wachowski

Mortgage Specialist | VirtuaLending

NMLS: 2443595

[email protected]