Understanding Investment Property Mortgages

Are you looking to rent out your property in Illinois? Or do a large-scale home renovation to make a profit from selling it in the future? Then you will need an option such as investment property in Illinois — however, the rates for such a loan and requirements are usually higher. Let’s take a closer look at whether you should choose this mortgage for your investment property.

What is an investment property mortgage?

An investment property mortgage is a loan for purchasing an investment property or its renovation for profit (reselling the house). The loan assumes you cannot live in the purchased property and will rent it to generate income. At the same time, “investment property” implies only the desired property – a house or from one to four apartments.

Why Choose Illinois for Real Estate Investment?

Illinois boasts a variety of appealing features for real estate investors:

  1. Diverse Market: From the bustling cityscape of Chicago to charming small towns, Illinois offers a wide range of investment opportunities.
  2. Economic Stability: With a robust economy supported by industries such as finance, manufacturing, and agriculture, Illinois provides a stable environment for real estate investments.
  3. Educational Institutions: Home to prestigious universities and colleges, Illinois attracts a steady influx of students and professionals, ensuring a consistent demand for rental properties.

Programs for Investment Property Mortgage

  • Conventional loans are the standard program for purchasing investment properties.
  • FHA loans — You can buy a home with two to four units and receive rent. But, provided that you live in one of the apartments for at least a year.
  • VA loans — military borrowers can buy a property of seven apartments, provided that they live in one of the apartments.
  • Non-QM loans — If you do not qualify for the above programs, you may want to consider this option. The loan is provided solely based on rental income from the home.
  • Owner financing — some sellers may act as a lender and provide temporary funding so you can purchase a home in exchange for a large, non-refundable down payment. Some agreements mean you must pay off the entire balance within a certain period.
  • A home equity loan is an option for borrowers with a high percentage of home equity in the property. You can use a home equity loan or line of credit.
  • Cash-out refinance — you borrow an amount exceeding your debt, use this loan to cover your old mortgage, and cash out the difference.
  • Hard Money Loans — investors with hard money can lend you money as long as you repay the loan quickly. The downside is the down payment of 25% and high rates.

Minimum requirements to obtain an investment property mortgage

Investment properties are a riskier idea for lenders. Therefore, if you are considering receiving income from real estate, you must confirm high financial stability.

  • High down payment — most lenders require at least a 20% down payment. But, you can reduce this amount by purchasing an apartment building through the VA or FHA.
  • Credit score — from 640 to 700 points if you buy an apartment building.
  • Mortgage reserves are monthly payments equal to 2-6 months’ worth of mortgage payments, depending on how much property you own.
  • Proof of rental income — the borrower must prepare copies of current leases, rental history, and tax returns. All this is needed to show high rental income.
  • Using Rental Income to Qualify — You may provide actual or estimated rental income from the home you purchase to qualify.
  • Property Management History — The lender may request documented proof of your rental experience. Or, for example, tax returns proving that you previously managed rental properties.

The process for applying for an investment loan

  • Select a lender and compare rates between them. Also, consider the hard money option — offered by individuals or partnerships.
  • Fill out a loan application
  • Provide documentation of your assets — current leases, bank accounts.
  • Pay for an investment appraisal — this report shows the financial viability of renting. The document includes a detailed description of the average rent for similar homes in the area.
  • Review the Closing Disclosure — Three days before closing, the lender will release the closing statement outlining the terms of your loan. Read the document carefully and ensure all the numbers match your expectations.
  • Prepare funds and close your investment property deal.


Rates on investment properties tend to be higher, as this is how lenders protect themselves. Therefore, the numbers are typically 0.5 to 0.875 percentage points higher than for primary residence. Also, your credit rating and the amount of the down payment will affect the rate — the more, the better.

Work with an Investment Mortgage Broker in Illinois

Investment property is a significant contribution to your well-being and a process that must consist of thoughtful steps. So that, as a result, you can conclude a profitable deal and ensure your prosperity!

If you are considering investing in real estate in Illinois, work with a professional who understands investment properties. At LBC Mortgage, we can find a loan that perfectly suits your needs, budget, and financial requirements. Together, we will go through the entire approval process — from the beginning to the transaction’s closing. Sign up for a free consultation to make getting a mortgage easy with LBC Mortgage.