How to Finance A Real Estate Investment: A Smart Investor’s Guide
- Jul 18
- 4 min read
Financing Basics for Investors
When it comes to real estate investing, finding the right financing strategy is just as important as finding the right property. Whether you’re a first-time investor or expanding your portfolio, understanding your financing options—and the requirements that come with them—can make or break your investment plan.
In this guide, we’ll break down the essential components of how to finance a real estate investment property, including investor loans, down payments, lender requirements, and cash reserves.
Related: Build Wealth Through Real Estate
1. What Are the Best Loan Options for Real Estate Investors?
Unlike traditional homeowners, investors have a broader array of lending options, each with its own pros and cons.
Conventional Loans
Offered by banks, credit unions, or mortgage brokers.
Often require 20–25% down on investment properties.
Lower interest rates if you have excellent credit.
DSCR Loans (Debt Service Coverage Ratio)
Popular for rental properties.
Approval is based on property cash flow—not your income.
Ideal for investors with multiple properties or complex finances.
Hard Money Loans
Short-term, asset-based loans—great for flips or BRRRR deals.
Fast approval, but high interest rates and fees.
Private Lenders
Loans from individuals or investment groups.
Flexible terms, but relationships and trust are key.
2. How Much Down Payment Do I Need?
Investment properties require larger down payments than primary residences:
Conventional loan: 15%–25% down (depending on property type and occupancy).
Multi-family (2–4 units): Typically closer to 25%.
Hard money/private loans: Can require 10%–30% down, or offer no-money-down deals with equity collateral.
Pro Tip: Lenders will also consider your reserves, so having extra liquid funds can improve your chances of approval—even if you meet the down payment minimum. Get the full breakdown of down payment requirements for investment properties.
“...the right financing plan can unlock profitable opportunities while keeping your risk manageable."
3. What Do Lenders Look for in Investors?
Lenders weigh several factors when underwriting investment loans:
Credit Score
Minimum: 620–640 (conventional).
Ideal: 700+ for best rates.
Debt-to-Income Ratio (DTI)
Aim for under 45%—or use DSCR loans to bypass personal DTI concerns.
Property Income Potential
Lenders may require an appraisal showing the property will generate enough rent to cover monthly obligations.
4. How Much Cash Should I Keep in Reserve?
Even if your deal pencils out on paper, lenders want to know you can weather the storm.
Common reserve requirements:
6–12 months of mortgage payments (PITI) for the property.
May include reserves for all properties you own—not just the one you’re financing.
Pro Tip: Even if your deal looks great on paper, lenders want to see that you can weather a financial storm. That’s why understanding cash reserve requirements is essential. Learn more about cash reserves from Rocket Mortgage.
How to Get Financed for a Real Estate Investment (Step-by-Step)
Step 1: Check Your Credit Score
Make sure your score meets lender minimums (typically 620+ for conventional loans, 700+ for better rates).
Step 2: Calculate Your Budget and Reserves
Know how much you can afford for a down payment (15–25%) and keep 6–12 months of reserves ready.
Step 3: Choose a Loan Type
Explore conventional, DSCR, hard money, or private lender options based on your investment strategy.
Step 4: Get Pre-Approved
Submit financial documents, credit history, and property goals to your lender to get pre-approved.
Step 5: Analyze the Property’s Financials
Ensure the deal cash flows and meets lender expectations for rent coverage or DSCR.
Step 6: Submit Full Loan Application
Once under contract, complete the lender’s application process including appraisal and underwriting.
Step 7: Close and Fund the Deal
Review the final loan terms, sign documents, and get your funds wired for closing day.
Pro Tip: Want a deeper dive into every step of financing an investment property—from credit score to closing day? Check out this full guide from Bankrate on how to finance your first investment property.
Final Thoughts
Financing your real estate investment starts with understanding the rules of the lending game—and playing to your strengths. Whether you leverage traditional loans, explore DSCR or hard money lending, or work with private lenders, the right financing plan can unlock profitable opportunities while keeping your risk manageable.
Looking to get pre-approved or review a deal structure? Talk to a loan officer who specializes in investor financing—and don’t forget to build relationships with multiple lenders so you can move fast when the right opportunity comes along.
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About the Author Ricardo Reis - Learn About Ricardo
Entrepreneur, Inventor, Investor, Military Veteran. Ricardo is a member of G3 Management & Investments a division of Great Lakes Real Estate and a real estate professional. He is a real estate professional and a successful real estate investor of over 15 years.
NOT INVESTMENT, FINANCIAL, LEGAL, TAX, OR OTHER ADVICE: This blog is for informational purposes only and not a substitute for professional advice. We do not offer advice, solicitation, recommendations, or endorsements. You are solely responsible for evaluating the information's merits and risks. Always consult a qualified professional before acting.
