If you already own your home and you are ready to take the next step into buying an investment property, you have four main loan options to choose from. There is the conventional investor loan, the bank statement loan, the DSCR loan, and the HELOC line of credit. Each one serves a different type of borrower, and the right one for you depends on your credit score, your income situation, how much you have saved, and what kind of property you are buying. I am going to walk through all four options with the requirements and the real numbers so you can see exactly where you fit.
Why These Four Loans?
About 20 to 25 percent of existing home sales in the United States are now made to investors, and that number keeps climbing. It is not just big companies buying up homes — it is individual people who understand the wealth-building power of rental real estate. If you own your home and you are ready to start accumulating investment properties, these four loan types are the traditional financing options that can get you there. I have helped buyers use each of them, and I will tell you straight up which one fits which situation.
| Loan Type | Credit Score | Down Payment | Income Docs | Reserves | Rate |
|---|---|---|---|---|---|
| Conventional | 660+ | 15-20% | 2 years tax/W2 | 2-6 months | Lowest |
| Bank Statement | 660-680+ | 20-25% | 12-24 mo statements | 2-6 months | Higher |
| DSCR | 660-680+ | 20-25% | None (rent-based) | 3+ months | Higher |
| HELOC / Ultimate | 680-720+ | 0% or 25%/70% LTV | 2 years + 43% DTI | 6 months | Variable |
1. Conventional Investor Loan
If you can qualify for a conventional investor loan, this is the one you want to start with. Why? Because it gives you the lowest interest rate of the bunch, and the lowest down payment requirements on the investment side.
What You Need
Credit Score: 660 or better
Higher scores get better pricing, but 660 is the starting point for an investment conventional loan.
Income Documentation: 2 years required
You need to show W2s, pay stubs, or tax returns for the last two years. If you cannot show that, you move to one of the other options.
Down Payment: 15% to 20%
Industry standard is 20% down. Some lenders will go to 85% loan-to-value, meaning 15% down. On a $250,000 property, 20% is $50,000 out of pocket.
Rental Income Credit: 75% of appraised rent
Lenders give you credit for 75% of the appraised rental income. If the appraisal says the home rents for $2,000, you get $1,500 added to your income for qualifying purposes.
Reserves: 2 to 6 months
You need liquid assets left over after closing. If your payment is $2,000 and they require 6 months reserves, you need $12,000 in the bank after the deal closes.
2. Bank Statement Loan
The bank statement loan exists for one specific type of borrower: the self-employed person whose tax returns do not tell the real story. I hear this all the time from small business owners and contractors. They say "My taxes only show $50,000 but I really make about $100,000." The problem is lenders only look at your tax returns on a conventional loan. The bank statement loan solves that.
Credit Score: 660 to 680 or better
Slightly higher thresholds than conventional, but still in the same range.
Income: 12 to 24 months of bank statements
No tax returns needed. You just show your bank deposits to prove what is actually flowing in. The interest rate is higher than conventional because the lender is taking on more risk.
Down Payment: 20% to 25%
You will not find 15% down on a bank statement loan. Plan on 20% at minimum, sometimes 25%.
Reserves: 2 to 6 months
Similar to conventional. The exact number depends on your credit score and other factors the lender considers.
The bank statement loan is a good option if you are self-employed and the numbers on your taxes do not match what you actually earn. But in many cases, the DSCR loan I am about to explain is an even better alternative.
3. DSCR Loan (Debt Service Coverage Ratio)
The DSCR loan is hands down the most popular option for investors who want to stack multiple rental properties. DSCR stands for debt service coverage ratio, and it simply means the lender looks at the rent coming in versus the cost of owning the property. That is it. They do not ask about your job, your income, your tax returns, or your W2s. The whole qualifying process is based on whether the property itself can support its own debt.
How the DSCR Ratio Works
Let us say you buy a $250,000 home that rents for $2,200 per month. Your monthly costs include principal, interest, property taxes, insurance, and any HOA dues. Suppose those costs total $2,000. Your ratio is $2,200 divided by $2,000, which equals 1.1. Most lenders want a ratio of 1.0 or better. Anything above 1.0 means the rent covers the costs and the property is cash-flow positive. If your ratio is below 1.0, the property is losing money on paper and the lender will not approve the loan.
Credit Score: 660 to 680 or better
The same range as the other loan types. Higher scores get you better pricing.
No Income Documentation
The loan application does not even ask for your employment. All that matters is the rent versus the debt service on that specific property.
Stackable for Multiple Properties
Because the lender does not look at your income, you can buy five, ten, or more properties as long as each one cash flows at a 1.0 ratio or better.
Down Payment: 20% to 25%
Some rare programs go down to 15%, but most require 20% or 25% down. On a $250,000 property, that is $50,000 to $62,500.
Reserves: 3 months or more
Plan on at least 3 months of reserves after closing. Depending on your credit, the lender may ask for more.
4. The HELOC: The Ultimate Loan for Investors
Now let me tell you about the loan that changes the game if you can qualify for it. I call it the ultimate loan. It is a home equity line of credit, or HELOC, established on the equity you already have in your primary residence. And here is the thing: only about four institutions across the entire country offer this product for investment property acquisition. They each call it something different in-house, but the concept is the same.
Why It Is the Ultimate Loan
- No down payment. You are accessing equity you already have in your home. There is no new cash coming out of pocket for the down payment.
- Speed. Once your HELOC is set up, you can close on an investment property in about a week. That is a massive negotiation advantage over someone using a conventional loan that takes 30 days.
- Reusability. A line of credit works like a giant credit card. You pay it down, and the credit becomes available again for your next purchase.
The Requirements Are Stricter
This is not a loan for everyone. You need to be an A-plus borrower to qualify.
Credit Score: 680 to 720 or better
Most lenders want at least 700, and 720 is the practical target for the best terms.
Debt-to-Income: 43% maximum
This is tighter than the 50% you see on conventional loans. Only 43% of your gross income can go toward all debts combined.
Income Docs: 2 years required
Like the conventional loan, you need to show two years of income history through W2s or tax returns.
Reserves: 6 months minimum
After closing, you need to have 6 months of mortgage payments left in liquid assets.
Down Payment / LTV: 25% down on purchase, or 70% LTV on refinance
If you are buying, plan on 25% down. If you already own a free and clear investment property worth $300,000, you can pull out $210,000 at 70% loan-to-value.
The Negotiation Advantage
Let me give you a real example. Say you find a $250,000 investment property you want to buy. A conventional loan buyer shows up and says "I will buy it, but I need 30 days to close." You walk in with your HELOC and say "I will buy it for $230,000 and close next week." Sellers love speed and certainty. That HELOC advantage can save you thousands on the purchase price while the other buyer is still waiting for underwriting. This is why I tell investors who can qualify for a HELOC to get it set up before they even start shopping. The speed alone is worth it.
Which Loan Should You Choose?
Conventional — if you can qualify
This is your lowest rate and your lowest down payment option. If you have a clean W2 income history and a 660+ credit score, start here.
Bank Statement — for self-employed with messy taxes
Use this when your tax returns do not show your real income. Your bank deposits tell the real story. Higher rate than conventional, but it gets the job done.
DSCR — for stacking multiple properties
No income docs required. The lender only looks at the rent versus the costs. You can buy property after property as long as each one cash flows. This is the workhorse for serious investors.
HELOC — for maximum speed and no down payment
If you have significant equity in your primary home and strong credit, this is your weapon. Close in a week, write a check, negotiate from a position of strength. Toughest to qualify for, but the most powerful when you do.
Frequently Asked Questions
What is the minimum credit score for an investment property loan?
How much down payment do I need for an investment property?
What is a DSCR loan and why is it popular with investors?
Can I use a HELOC to buy an investment property?
What if I am self-employed and my taxes do not show enough income?
How many investment properties can I buy using these loans?
Continue Your Education
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Not Sure Which Loan Fits Your Investment Strategy?
Every investor's situation is different. I will look at your credit, your equity, your income situation, and your goals, and tell you exactly which loan gives you the best path forward. That is what I do. That is what I have been doing for over 23 years.
Patrick Kevin Fagan
Loan Officer and Realtor · AXEN Realty LLC · San Antonio and Texas Hill Country
Licensed Sales Agent · 454749 · TX · NMLS 877741
Sincerely, Patrick Kevin Fagan