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If you're planning to buy an income-generating property, shopping around to find the best mortgage rates can help you make the most of your investment.
Check out today's investment property mortgage rates and learn how these types of rates are determined.
Current investment property mortgage rates
Mortgage rates fell across the board in November, with 30-year mortgage rates dipping below 7% for the first time since September. Overall, 30-year rates averaged 7.11% last month, and they've dropped even further in recent weeks.
Most major forecasts expect mortgage rates to go down in 2024. If you're looking to buy an investment property, you may want to hold off for a few months, or buy now and plan on refinancing when rates go down.
As you explore rates, keep in mind that investment property mortgage rates are usually higher than mortgage rates on primary residences or second homes.
See how investment property mortgage rates compare
Check out today's mortgage rates to see how rates are trending. These rates are for all mortgages, not just investment property mortgages.
Investment property definition
When using a mortgage to buy a property, buyers can choose from three types of occupancy: primary residence, second home, and investment property.
Your primary residence is your home, and the place where you live for the majority of the year. A second home is a home you occupy only some of the time, such as a vacation home.
Investment properties are properties purchased solely for the purpose of generating income, often by renting it out on a short- or long-term basis. Investment properties are not owner-occupied, meaning the owner doesn't live in the home.
Are investment property mortgage rates higher?
The main reason investment property mortgage rates can be higher than other types of mortgages is that lenders consider investment property mortgages to be at a higher risk of default than other occupancy types.
Why are investment property mortgages riskier? If the borrower encounters a financial hardship, they're more likely to make sure the costs on their primary residence are paid first. Investment properties also require a lot of work and money to maintain. If the owner has a hard time finding tenants or ends up putting more money into their investment than they're getting out of it, they could decide to walk away.
Other factors that can impact your rate include how much you're borrowing and where the property is located. If you're buying a very high-cost property, you may pay more in interest. Some states also have higher average rates than others.
To help keep your rate as low as possible, you could work on boosting your credit score, improving your debt-to-income ratio (DTI), and saving for a larger down payment. You should also get preapproved with more than one lender so you can compare offers.
How to qualify for an investment property mortgage
Because the risks are higher, the requirements for an investment property mortgage are stricter.
You'll need to put down at least 15% to purchase a single-unit investment property. If you're buying a property with multiple units, you'll need at least 25%. If you can put down more than the minimum, you'll likely get a better rate.
"A homebuyer looking to purchase an investment property should account for a 20% to 25% down payment to get a competitive rate," says Raul Hernandez, a mortgage broker with Competitive Home Lending.
Additionally, Hernandez says its possible to qualify for an investment property mortgage with a credit score as low as 620. But those with lower scores will need to make a larger down payment and pay more in interest, he says.
Mortgage calculator
Use Insider's free mortgage calculator to see how different rates can impact your monthly payment and overall loan costs.
Investment property mortgage frequently asked questions
Are mortgage interest rates higher for investment properties?
Yes, rates are generally higher for investment property mortgages than for mortgages used on other types of properties. This is because these mortgages are riskier for lenders.
Do you need 20% for an investment property?
The amount you'll need to purchase an investment property can vary depending on your lender — but typically you'll need a minimum of 15% down for a single unit, and 25% down for a two to four-unit property.
Is it harder to get a mortgage for an investment property?
You'll need a higher credit score and down payment to qualify for an investment property mortgage than you would with a primary residence mortgage. Keeping your DTI to an acceptable level may also be more difficult, since you'll be adding a new mortgage to any existing loans you're already paying.
How do you get 20% down on an investment property?
If you're having trouble coming up with a sufficient down payment for your investment property purchase, you might consider tapping into the money you have in your current home with a home equity loan or HELOC.