Investing in real estate is one of the most effective ways to build wealth, generate passive income, and diversify your portfolio – and loans for investment properties are the place to start.
Securing the right loan for an investment property is just as important as choosing the property itself. The financing you choose can impact everything from your cash flow and ROI to your ability to scale your real estate portfolio.
At Defy Mortgage, we understand that traditional financing doesn’t always work for investors. Thanks to the rise of the gig economy – with around 35% of US workers now involved in some form of gig work – that’s never been more true.
That’s why we offer 75+ non-traditional lending options designed specifically for entrepreneurs, real estate investors, and self-employed borrowers who don’t fit the conventional lending mould. Whether you’re looking for a DSCR loan, P&L loan or home equity loan, we have solutions tailored to your unique investment strategy.
In this guide, we will break down the best financing options for investment properties, their pros and cons, and how to choose the right one for your goals. Please keep in mind that we do not offer all of the loan options listed below. If you have questions about our loan products or programs, please don’t hesitate to reach out:
1. Conventional Bank Loans
A conventional mortgage is the most familiar option for many investors. These loans are issued by banks and credit unions and adhere to Fannie Mae and Freddie Mac guidelines. However, unlike primary home loans, investment property mortgages require higher down payments (usually 20-30 percent) and stricter credit requirements.
Pros:
- Lower interest rates than hard money or private loans
- Long repayment terms (15-30 years)
- Stable, predictable payments with fixed-rate options
Cons:
- Requires a strong credit score (typically 680 or higher)
- Lenders will likely need to see at least two years of W-2s.
- Investment properties require higher down payments (20-30%)
- Rental income usually is not factored into your debt-to-income (DTI) ratio
Best for: Investors with strong credit, stable income, and significant cash reserves looking for long-term rental properties.
2. DSCR Loans (Debt Service Coverage Ratio Loans)
Debt Service Coverage Ratio (DSCR) loans are one of the best financing options for real estate investors because they focus on the property’s income rather than the borrower’s personal income. Instead of requiring W-2s, tax returns, or pay stubs, lenders approve you based on whether the rental income from the property can cover the loan payments.
Pros:
- No personal income verification required
- Qualify using rental income — more flexibility
- Perfect for rental properties — approval is based on cash flow
- No impact on personal DTI, allowing for easy portfolio growth
Cons:
- Higher interest rates than conventional loans
- Not suitable for owner-occupied properties
- Must meet lender-specific DSCR minimums (typically 1.0-1.25x) but not at Defy, we accept DSCR down to 0.75!
Best for: Real estate investors looking to finance single-family rentals, multifamily units, or short-term rentals without personal income verification.
3. Hard Money Loans
Hard money loans are short-term, asset-based loans used primarily for fix-and-flip or value-add projects. These loans are secured by the property’s after-repair value (ARV) rather than the borrower’s credit or income.
Pros:
- Quick approval and funding (as fast as 7-10 days)
- No need for perfect credit — approval is based on the deal
- Great for investors who need short-term financing for flips or BRRRR (Buy, Rehab, Rent, Refinance, Repeat)
Cons:
- Higher interest rates (8-15 percent or more)
- Usually need some sort of demonstrated history of successful prior flips
- Short loan terms (typically 6-24 months)
- Higher origination fees and closing costs
Best for: Fix-and-flip investors or those looking for short-term bridge financing before refinancing into a long-term loan.
4. Home Equity Loans & HELOCs
If you already own a primary residence or investment property with built-up equity, you can tap into it through:
- A home equity loan (HEL) – A lump sum loan secured by your home’s equity
- A home equity line of credit (HELOC) – A revolving credit line based on your home’s equity
Pros:
- Lower interest rates than hard money or private loans
- Can fund down payments, renovations, or new purchases
- HELOCs offer flexible, reusable credit lines
Cons:
- Puts your primary home at risk if you default
- May require a 680 or higher credit score and sufficient home equity
Best for: Homeowners or investors looking to leverage existing equity to fund rental property purchases, down payments, or rehab projects.
5. Commercial Loans
If you are financing apartment buildings, mixed-use developments, or commercial spaces, you will likely need a commercial real estate loan. These loans have shorter terms (5-20 years) and require a down payment of 25-30 percent.
Pros:
- Access to large loan amounts
- Prioritizes property cash flow over personal financials
- Interest rates can be competitive
Cons:
- Requires a strong financial track record and business plan
- Longer approval process (weeks to months)
- May require balloon payments or shorter amortization periods
Best for: Investors financing multifamily properties (five or more units), office buildings, or retail spaces.
6. Foreign National Loans
Overview: Financing options specifically designed for non-U.S. residents who want to invest in U.S. real estate. These loans allow foreign nationals to purchase investment properties without needing a U.S. credit history or Social Security number. Instead, lenders use alternative methods to assess creditworthiness, such as international credit reports, bank statements, or business financials.
Pros:
- Available to non-residents without U.S. credit history
- Enables international investors to enter the U.S. real estate market
- Flexible income and asset verification options
- Protection under U.S. property laws
Cons:
- Requires a higher down payment (typically 25-40%)
- Higher interest rates compared to conventional loans
- Extensive verification process may require foreign references
Best for: Non-U.S. residents looking to invest in rental properties, vacation homes, or commercial real estate in the U.S.
7. Portfolio Loans
Overview: A financing option for real estate investors who own or plan to own multiple properties. Unlike conventional loans, portfolio loans are not sold on the secondary market. Instead, they remain in the lender’s portfolio, allowing for more flexibility in underwriting, qualification, and repayment terms. Some portfolio loans allow investors to consolidate multiple properties into a single loan.
Pros:
- Can finance multiple investment properties under one loan
- Easier qualification than conventional loans
- Flexible loan terms, interest rates, and repayment schedules
- No hard limits on the number of properties financed
Cons:
- Higher interest rates than conventional mortgages
- Variable terms depending on the lender
- Complex loan structuring may require additional documentation
- Using multiple properties as collateral can limit refinancing or selling individual assets
Best for: Real estate investors who own or want to acquire multiple rental properties and prefer a simplified financing structure.
8. P&L Loans (Profit & Loss Loans)
Overview: A financing solution for self-employed borrowers and business owners who may not have traditional income documentation such as W-2s or pay stubs. Instead, lenders use the borrower’s profit and loss (P&L) statement to determine eligibility and loan terms. This option is particularly useful for real estate investors with fluctuating incomes or significant tax write-offs that make conventional loan qualification difficult.
Pros:
- Does not require tax returns or W-2s
- Easier qualification for self-employed investors
- Loan approval based on business cash flow rather than personal income
- Potentially higher loan amounts than conventional financing
Cons:
- Higher interest rates than traditional bank loans
- Some lenders may require additional reserves or a larger down payment
- Limited availability compared to conventional loans
Best for: Self-employed investors, business owners, or freelancers who have strong business cash flow but do not meet the income documentation requirements of traditional loans.
Choosing the Right Loan for Investment Properties
Financing a rental property requires understanding several specialized loan options that differ from primary residence mortgages.
- Factors to consider:
- Investment goals (long-term rental, fix-and-flip, portfolio growth)
- Financial profile (credit score, cash reserves, income type)
- Loan terms, interest rates, and qualification requirements
- Lender options (reviews, experience, expertise) – Build relationships with multiple lenders. Different property types may require different financing solutions.
- Expenses (Insurance, taxes, maintenance, and property management)
How Defy Mortgage Can Help
At Defy Mortgage, we specialize in non-traditional lending for real estate investors. Whether you need a rental loan or long-term investment property loan, we have options tailored to your investment strategy with options for rental income, no tax returns and more!
If you’re interested, schedule an appointment with us and we’ll see what we can do to help.
FAQs: Loans for Investment Properties
How can I break into the real estate market?
Traditional lenders make it difficult to acquire properties, but we understand unique financial situations, etc.
What is the minimum down payment for an investment property loan?
Varies by loan type
Can I qualify for an investment property loan with a low credit score?
Conventional loans: Typically require 680+
DSCR, hard money, and P&L loans: More flexible, focus on property cash flow
Private and portfolio loans: May prioritize deal strength over credit score
How do DSCR loans work for rental properties?
Qualifies borrowers based on rental income, not personal income
What are the best financing options for fix-and-flip properties?
Hard money loans and private money loans: Fast approval and short-term flexibility
Home equity or portfolio loans: Alternative funding sources for repeat investors
Can I use my home equity to finance an investment property?
Home equity loan, HELOC, or cash-out refinance can provide capital
What is the difference between a conventional loan and a portfolio loan?
Conventional loans: Follow Fannie Mae/Freddie Mac guidelines, require full income documentation, and limit borrowers to 10 financed properties
Portfolio loans: More flexible, allow multiple properties under one loan, and have less strict income requirements
Can foreign investors get a mortgage in the U.S.?
Foreign national loans available without Social Security number or U.S. credit history
Require higher down payments (25-40%)
Use alternative income verification (bank statements, international credit reports)
What are P&L loans, and who should use them?
Qualify self-employed borrowers using business cash flow instead of W-2s or tax returns
Ideal for real estate investors, business owners, and freelancers
What are the typical interest rates for investment property loans?
This varies wildly by lender and Defy has some of the most competitive rates in the industry, but here’s what’s typical:
Conventional loans: 6-8%
DSCR loans: 7-10%
Hard money loans: 10-15%
Private money loans: 6-12%
Portfolio loans: 7-10%
Foreign national loans: 8-12%
