6 Loan Options for Property Investors

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Building a real estate portfolio can feel exciting and overwhelming at the same time. You’re weighing potential returns, planning renovations, and watching the market while also trying to figure out which investment property loan option actually supports your strategy. 

As challenging as it can be to navigate the financing process, it can be done! When you understand how different loan options work, you can work with your lender to choose the one that fits your goals, timeline, and the type of property you want to buy. 

In this article, we’ll walk through six common loan options investors use to purchase and improve investment properties. This is not an exhaustive list of all the investment property loan options available to borrowers, but it’s a good place to start.

1. Debt Service Coverage Ratio (DSCR) Loan

A Debt Service Coverage Ratio (DSCR) loan is designed for short- and long-term property investors who want the property’s rental income, not their personal income, to be considered in underwriting. Instead of relying on traditional income verification documents like W-2s or tax returns, lenders look at whether the expected rent would be sufficient to cover the mortgage payment.  

For DSCR loans, lenders typically compare two numbers:  

• The property’s expected rental income  

• The total mortgage payment, including principal, interest, taxes and insurance.  

When the rent meets or exceeds the borrower’s debt obligations, the property “covers its debt,” which helps support the loan. 

These loans are often used by investors building out their portfolio, those who use multiple income streams, or anyone who prefers a qualification process centered around the strength of the property rather than personal financial paperwork.  

However, borrowers should make note that DSCR loans are a type of non-qualified mortgage (Non-QM). Non-QM loans do not have to adhere to the same standards as qualified mortgages. That means they can have riskier features for borrowers, so be sure to discuss these with your lender.

2. Investment Property Loan

An investment property loan is a type of mortgage designed specifically for homes you plan to rent out instead of live in. Because the home won’t be your primary residence, lenders typically have more stringent requirements for your financial profile, credit history and available reserves when compared to a conventional loan. Higher down payment requirements are also not uncommon for this loan type. 

Rental income from the property may be considered during underwriting, following established agency guidelines. Another useful trait for property investors is that these loans may allow borrowers to hold the property title in their Limited Liability Company (LLC).    

If you are an investor who wants a more straightforward option than non-QM loans for acquiring rental properties, and you prefer to qualify using traditional income verification documentation, an investment property loan might be worth considering.

3. Bank Statement Loan

A bank statement loan is a type of non-QM loan designed for borrowers whose income isn’t easily shown through W-2s, pay stubs or traditional tax documents. Instead of reviewing standard income verification, lenders analyze deposits in your personal or business bank statements to determine whether you have consistent revenue that can support the loan. 

Lenders may ask for 12 or 24 months of bank statements to calculate qualifying income. Depending on the program, they may use a percentage of your deposits to estimate monthly income. 

Investors sometimes gravitate toward bank statement loans because they can be:  

• Helpful for self-employed borrowers, 1099 earners and business owners 

• A way to qualify for a loan based on actual cash flow rather than taxable income 

• Can be used for investment properties, depending on lender requirements 

As with other non-QM loans, borrowers should review structure, terms and any potential risks with their lender before applying.

4. Cash-Out Refinance

A cash-out refinance allows qualified borrowers to replace their current mortgage with a new one while pulling out a portion of their home’s equity as cash. The new loan comes with updated terms, which may include a new rate, new repayment period, or both. For property investors, this can be a way to access funds for renovations or future investment purchases.   

Note that cash-out refinances come with specific underwriting guidelines, including loan-to-value limits and equity thresholds. Because the new mortgage may have a different rate or term, borrowers should review how the change impacts their monthly payment and long-term financial goals. 

But if you’re a property investor who wants to tap existing equity to improve a current property or help fund future purchases without relying on separate lines of credit or short-term financing, cash-out refinancing might be worth a look.

5. Home Equity Loan (HELOAN)

A Home Equity Loan (HELOAN) can help qualified borrowers access a portion of their home equity, typically through a fixed-rate, lump-sum loan. For property investors, this can be helpful when planning targeted upgrades, repairs or improvements that support long-term rental value or marketability. HELOANs could also be used to support a down payment on a new investment property.  

HELOANs come with underwriting requirements that take into account credit, equity, and overall financial stability. Lenders also review the borrower’s existing mortgage and the combined loan-to-value ratio to determine eligibility.  

As with any additional financing, it’s important to understand how a second mortgage impacts your overall cash flow and long-term investment goals. Also, it must be understood that this loan is secured against your property, meaning you could lose the property if you default. 

For investors who want to access equity without refinancing their primary mortgage and who prefer the consistency of a fixed rate and set repayment schedule, a HELOAN might be an option.

6. Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) is an open-end line of credit that lets qualified borrowers tap into their home equity as needed for a set period of time. Then, you would repay based on the money you used. For property investors, this can be helpful when planning ongoing or phased projects, unexpected repairs, or future investment opportunities. 

HELOCs typically come with a variable interest rate and a draw period in which payments are interest-only. After that, the loan enters a repayment period with principal-and-interest payments.  

Underwriting considers credit history, debt-to-income ratio and total equity in the home, along with loan-to-value requirements based on whether the property is a primary residence or second home. Because a HELOC is also secured against the property like a HELOAN, you could risk losing the property if you default on your HELOC.

How to Choose the Right Option for You

Choosing the right financing tool comes down to factors including how you plan to use the property and what your financial picture looks like today. Some investors want their rental income to drive the qualification process. Others prefer traditional documentation. And some may want access to their existing equity without touching their current mortgage. 

As you consider your options, it might help to start by asking a few key questions: 

• How will you use the funds? Renovations, a new purchase or ongoing projects may each point to a different loan type. 

• How do you prefer to verify income? Traditional borrowers may lean toward an investment property loan, while self-employed investors might find DSCR or bank statement options more practical. 

• Do you want a one-time lump sum or access to funds over time? Cash-out refinances and HELOANs deliver proceeds upfront, while HELOCs allow draws during a set period. 

• How does the new loan affect long-term goals? Rate structure, repayment terms and equity position should all align with your overall investing strategy. 

No single option is right for every situation. Reviewing your plans, timeline, and overall financial picture can make it easier to determine which approach fits your investment goals.

Final Thoughts

Real estate investing comes with plenty of moving parts, and financing is one of the most important pieces to get right. Understanding how each loan option works can help you choose an approach that supports your goals rather than complicating them. 

As you map out your next steps, take time to think through how you plan to use the property, what kind of payment structure fits your budget, and how each option aligns with your overall investing strategy. The more clarity you have upfront, the easier it becomes to make decisions that feel intentional and sustainable. 

Disclaimer: Subject to credit approval. Terms and conditions may apply. Property insurance is required. A HELOC is a revolving line of credit secured by your home. Borrowers can draw upon the credit as needed during the Draw Period and are only required to pay interest on the amount borrowed. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation. Closed-end second mortgages, home equity loans, and cash-out refinance loans are not a revolving line of credit like HELOCs, and typically provide a single, lump-sum payment at closing that is repaid with a fixed rate in regular installments over a set term, similar to a traditional mortgage.