Want to learn how to finance a rental property? You’re in the right place. 

In this article, I’ll share with you six effective ways to finance your first rental property and start your real estate investor journey.

Want to learn more? Read on.

Key insights:

  • The best loan for low-income, first-time buyers is a Federal Housing Administration loan.
  • You can lower your down payment by applying for a Federal Housing Administration (FHA). These loans have down payments as low as 3.5%. You may also qualify for down payment assistance.
  • To get a mortgage, you typically need a credit score of at least 620. Federal Housing Administration (FHA) loans accept people with lower credit scores (usually a minimum of 580).
  • If you don’t have the cash to buy a property, you can partner with a friend or family member who can invest in the down payment. Or you can tap into your home equity.

6 ways to finance a rental property

Six ways to finance a rental property are:

  • Conventional bank loans
  • Federal Housing Administration loans (FHA)
  • Home equity loans
  • Veterans Affairs loans (VA)
  • Private lenders
  • Hard money loans

Let’s dive into them one by one.

Note: I’m an experienced real estate investor with a seven-figure portfolio. However, I am not a mortgage broker or financial professional. Please do your own research to make the best financial decision for you.

Conventional bank loans  

Let’s start with the most common method for financing a rental property: conventional bank loans. 

A bank will typically ask for a healthy credit score of at least 620, a low debt-to-income ratio, and proof of stable income for the past two years. 

Because mortgages are so competitive, some lenders ask for a credit score of 720.

This is why it can be tricky to buy a house if you have student loans, lower income, or a spouse with debt. 

But it’s not impossible. In fact, the number of property loans has slowly increased in the last few years.

If you qualify, most bank lenders will ask for the expected rental income of your property and a 15-20% down payment.


  • Easiest loan to find on the market
  • No loan limits


  • Requires a good credit score
  • Strict on debt-to-income ratio

Top tips:

  • House hacking can lower your down payment. This is when you live in your rental property and rent out the other rooms. Because you’re more likely to make payments on a home that you live in, you might be offered a lower down payment. And you only have to live in the property for a year, so you can repeat the process with future properties.

Federal Housing Administration Loan (FHA) 

Do you have a lower-income or lower credit score but you want to get into real estate? Federal Housing Administration Loans might be the answer. 

FHA loans are government-backed mortgages specifically aimed at first-time and lower-income buyers. 

So if you have student loans or a 580 credit score, no problem. You might still qualify.

And because of the intended audience for these loans, the down payment is much lower than conventional loans. Typically it’s 3.5%.

Sounds good right? Well, there are a few things to take into account. 

First, there are limits on how much you can borrow.

In 2024, the loan limits were raised by over $26,000 in response to rising house prices across the country. 

This is a good thing. It means that getting into real estate is more affordable for more people. But it still means you’re limited when it comes to properties. 

Speaking of which, FHA loans have a strict home appraisal process meaning the property you choose has to meet a certain standard. You can’t fix and flip with this type of loan. 

You also have to live in the property you buy with an FHA loan. But you can still rent out the other rooms of your home to cover the mortgage and live in the home for free.

I talk more about the free-living strategy in this video:

Finally, FHA loans require upfront mortgage insurance premiums (MIPs) as well as annual mortgage insurance premiums. These can raise your expenses. 


  • Lower down payment 
  • Suitable for people with lower credit scores
  • Better interest rate


  • Upfront mortgage insurance premiums
  • Stricter home appraisals
  • Loan limits

Top tips:

  • If you’re struggling to get the money for a down payment, research down payment assistance programs. If you get a payday loan or cash advance, your loan application will be rejected.
  • If you can pay a 10% down payment, your monthly mortgage insurance will be removed after 11 years.

Tap into your home equity 

Do you already own a property? Then you can purchase a second property by tapping into your home equity. 

There are two types:

  • Home equity loan – This is when you borrow a lump sum at a fixed-rate of interest on the equity of your home. In effect, you take out a second mortgage. 
  • Home equity line of credit (HELOC) – This is when you use your home equity as a line of credit, like a credit card. You can draw from it whenever you want and then pay the money back for a defined length of time decided by the lender. 

Home equity loans are more common for people wanting to get into rental property investing.

Why? Because it gives you a lump sum that you can use as a down payment on your second property. 


  • Requires no money down
  • Relatively easy to get


  • Your home is at risk if you default on the loan
  • Higher interest rate than your first mortgage

Top tips:

  • Make sure you know exactly how much you need to purchase your second property so you can get the correct amount from your home equity loan.

Veterans Affairs (VA) loan 

If you’re a veteran, an active-duty service member, or married to a veteran, listen up. 

Veteran Affairs (VA) loans are some of the best loans out there for buying a rental property. 

You don’t need a down payment or any private mortgage insurance. So your upfront costs are much lower than other loans. 

There are no maximum loan limits, and the acceptance rate is almost 95% for eligible applicants.

You do, however, need a good credit score – at least 620. And you need to pay a 1.5-3% funding fee (though this is exempt for disabled veterans).

To qualify, you need to live on the property for at least one year and it must be your first property. But don’t worry – if you buy a house with multiple rooms, you can rent out the other rooms for that first year.


  • No down payment required
  • High acceptance rate


  • Only open to military service members, veterans, or spouses of deceased veterans
  • Requires a funding fee

Top tips:

  • If you’re entitled to veterans disability compensation, apply for that before you apply for your VA loan. This will waive your funding fee and entitle you to more benefits with your loan.

Private lenders 

Getting a mortgage can be challenging at the best of times. Especially if you have low credit or don’t have the money for a down payment right now. 

If that’s you, you can still get into real estate this year. 

How? Your friends, family, or private investors can help you with the down payment or even sign a loan with you (like a partnership). 

However, loans from private investors can come with very high interest rates, so that’s a risky option. Another alternative is to partner with someone you know and trust.

For example, I bought a property with my uncle which got me started in the real estate industry. I talk more about our arrangement here:


  • Flexible credit score requirement
  • Ability to negotiate terms


  • Sometimes higher interest payments
  • Requires a personal relationship

Top tips:

  • Even if your lender is your best friend, write a loan agreement between you. This will save any confusion around repayments or interest later on.

Hard money loans 

Hard money loans are mortgages that use property as collateral. They are quicker to get than a conventional bank loan or an FHA loan, and they don’t take into account your creditworthiness

So if you have a property with a lot of equity, but your credit score is too low to get a home equity loan, this could work for you.

But here’s the thing: Most real estate investors consider hard money loans as short-term solutions. 

Why? Well, hard money loans are much more expensive than conventional bank loans. 

The down payment for a hard money loan tends to be much higher. Then, the average interest rate is 10-18%. Compare that to the 3-5% interest rate on conventional bank loans. 

Plus, you can’t get a hard money loan from a traditional bank. You’d have to go to private hard money lenders which means you’re more vulnerable to scams.

Look, if you plan to flip and sell your property, the high interest rate won’t matter too much because you won’t keep the property for long. 

But if you want to keep the house as a long-term rental property, the high interest rate could eat into your profits.


  • Much faster to secure than other mortgages
  • Good for buyers with poor credit


  • Not secured by traditional banks so can be risky
  • Higher interest rates than average mortgages

Top tips:

  • Break down the numbers to see if a hard money loan makes sense for the ROI you expect on your rental property. If the interest or down payment are too high, consider alternative options.

What else should you keep in mind when financing a rental property? 

Ready to finance your first property? Here are a few key things to think about.

  • Credit history: Your credit score and history is one of the key deciding factors for mortgage lenders. For conventional bank loans, they’ll expect a minimum of 620, but some want scores as high as 740. Then there’s your debt-to-income ratio. If you can lower your debts you’ll have a better chance at securing a loan.
  • Interest rates: Shop around for the best interest rates for the type of loan you’re applying for. Generally, conventional loans have the best interest rates, but mortgage lenders vary. 
  • Down payment: You’ll need a down payment to secure most mortgages (except Veterans Affairs loans). But if you live on the property, you can often lower your down payment. 
  • Rental income: Do some calculations on the rental income you can expect before looking for financing. This will help you figure out what will be a good mortgage deal. You want to make sure the rent can cover your mortgage, property taxes, home insurance, landlord insurance, and any other expenses.
  • Closing costs: Closing costs can be unpredictable, so budget for as many things as possible. Factor in agency fees, attorney fees, home appraisals, mortgage insurance, title insurance, and so on.
  • Taxes: There are multiple taxes involved with owning and renting a property – income tax, property tax, and so on. Consult a tax accountant for expert advice.

Next steps

And that’s how to finance a rental property.

But financing is just the beginning. There are so many more things you need to learn to get your first rental property and thrive as a real estate investor. 

That’s why I created my coaching program.

My mission is to help others build a six-figure student housing investment portfolio.

And you’ll only need to start with your first property. 

If you’re ready to start your real estate investment career with a mentor who can show you the ropes, learn more about how we can work together here.

Read more:

 How to Make Passive Income on Rental Properties

Are Rental Properties a Good Investment?

What Type of Rental Property is Most Profitable?

About Ryan Chaw

About Ryan Chaw:
Ryan Chaw is a real estate investor with a multi-state and multiple six-figure rental portfolio, which he built on the side of his full-time job. Ryan also teaches others how to buy their first deal and quickly scale to owning multiple properties. Ryan also teaches others how to buy their first deal and quickly scale to owning multiple properties. Read more about Ryan here.