Investment Property Loans in Florida

Looking to purchase or refinance a non-owner-occupied property?  You’ve come to the right place. We are expert providers of creative investment property loans in Florida.

Exploring the world of real estate investment in Florida unveils a realm of opportunities for both seasoned and aspiring investors.

Investment rental property loans in Florida are the gateway to turning real estate ambitions into reality, offering a diverse range of financing options to suit different investment strategies.

Whether you’re looking to acquire a rental property, engage in fix-and-flip projects, or refinance to expand your investment portfolio, understanding the nuances of these loans is crucial.

This guide delves into the essentials of investment property loans in the Sunshine State, providing you with the knowledge and confidence to make informed decisions in your real estate investment journey.

What is an investment property loan? The basics

Investment property loans, also known as rental property loans, are specialized mortgages designed for purchasing or refinancing properties that the borrower does not intend to occupy. These loans offer a pathway to acquire or refinance properties that generate income through renting or reselling after renovation.

Generally speaking, an investment property should not be used as a primary residence.  However, for 2-, 3-, and 4-unit properties, some lenders may allow the borrower to occupy one of the units as their primary residence.

What property types qualify for real estate investment loans?

To qualify for a residential investment loan, the subject property must have 4 units or less.

A property with 5 or more units is considered a commercial property and will require a commercial real estate loan instead.  If you need a commercial loan, please consult our guide on how to get a commercial loan for investment property.

Here are the traditional residential property types eligible for real estate investment loans:

  • Single-family residences: Ideal for investors starting in real estate or looking to expand their portfolio with standalone properties.
  • 2-4 unit properties:  This includes duplexes, triplexes, and quadplexes, offering the potential for higher rental income and diversification within a single investment.  As mentioned above, some lenders allow the borrower to occupy one of the units.
  • Condominiums: Condos are popular in Florida’s real estate market.
  • Townhomes: These properties combine the features of single-family homes and condos, providing a unique investment opportunity.
  • Planned urban developments (PUDs): These are planned communities with shared amenities, often attracting a specific tenant demographic.

There are also creative loan programs that cover non-traditional property types, including:

  • Non-warrantable condominiums: These condos do not meet Fannie Mae and Freddie Mac criteria but can still be financed under certain loan programs.
  • Co-ops: Cooperative housing is less common but can be a lucrative investment with the right financing.
  • Short-term rental properties:  Condotels and properties like Airbnb or Vrbo rentals are increasingly popular, especially in tourist-heavy areas of Florida.

Different types of real estate loans for an investment property

Real estate loans for an investment property generally fall into two main categories:

  1. Conventional Mortgages: These mortgages, offered by traditional lenders, are ideal for investors who have strong credit and financial profiles and can demonstrate their income through 2 years of tax returns.  
  2. Alternative Mortgages: For investors who fall outside a traditional lender’s strict criteria, they would be better suited to apply to an alternative, non-qualifed (non-QM) mortgage lender.

This article focuses on the latter category and discusses the most creative real estate investment loan options, none of which require the borrower to provide a single tax return.

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Real estate investor loans: general terms to expect

The exact terms of real estate investor loans will vary depending on multiple factors, including credit score, citizenship status, property type, loan amount sought, etc. 

However, below are typical loan parameters to consider as a rule of thumb.

Loan amount

The maximum loan amounts vary depending on the program, but you can expect maximum loan amounts up to $3 million or more. Some lenders may accommodate up to $30-50 million (see for example the Rental Portfolio loan program outlined below).

Loan-to-value ratio

Again, the maximum loan-to-value (LTV) is highly dependent on the program, but the LTV can range up to 80%, with some lenders allowing exceptions for higher leverage.

For purchases, the LTV is calculated by dividing the loan amount by the lower of the contract price and the appraised value.

For refinances, the LTV is calculated by dividing the loan amount by the appraised value.

Repayment terms: 30-year rental property loans are available

There are multiple options when it comes to the length of time you have to repay the loan, and whether the interest rate is fixed or variable throughout that time period.

For fixed-rate options, 30-year rental property loans are popular, and 15-year terms are also available.

In the case of a bridge loan with a fixed rate, the repayment terms are much shorter, typically 6 to 36 months.

There are also adjustable rate mortgages (ARMs), where the rate is fixed for a certain period and then adjusts on a certain schedule, typically over a 30-year amortization.  Read our guide to discover how does an ARM mortgage work.

Whichever repayment term you choose, be sure to check if the lender offers the option to make interest-only payments, instead of principal-and-interest monthly payments. By lowering your monthly mortgage payment, you can improve your cash flow. Typically, if you choose the interest-only option, the lender will slightly increase your interest rate.

Credit score

The higher your credit score, the better your chances are of obtaining a higher LTV and a lower interest rate. Typically, lenders require a minimum credit score in the 600s, but some lenders may allow lower scores.

Prepayment penalty

Unlike owner-occupied properties (primary residence and second or vacation home), where prepayment penalties are usually prohibited by law, lenders are able to charge prepayment penalties for investment property loans.

A prepayment penalty is a penalty that the borrower must pay if they pay off the loan during a certain time period before the maturity date

For example, a 3-year prepayment penalty means the borrower will incur the penalty if they pay off the loan within the first 3 years. This ensures that the lender receives a certain return on their investment, as being paid off early means the lender has to forgo receiving the mortgage payments for the rest of the term.

Most lenders provide the option of shortening the term of the prepayment penalty, e.g., to go from a 3-year to a 1-year prepayment penalty, or even to remove it altogether. In exchange for this benefit, the lender will likely either increase your interest rate or charge you points at closing.

These loan terms may vary from program to program, and it is best to compare all your options to make sure you get the best value for your money.

As a start, below are the top 7 creative investment property loans designed for every investor—regardless of whether you are self-employed, a foreign national, or a borrower who simply cannot comply with the typical documentary requirements.

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Creative investment property loans in Florida to satisfy every scenario

Under a traditional investment property loan, the borrower must provide full documentation of their income through tax returns, tax transcripts (IRS Form 4506-Ts), W2s, pay stubs, and other documents.  The borrower must also have a strong credit score and a debt-to-income ratio (DTI) no greater than 43-45%.

Not everyone can satisfy those stringent guidelines.

Fortunately, alternative mortgages known as non-QM loans have found their way into the mortgage industry.

These are innovative financial solutions that offer better alternatives. The simplicity of their design and the ease of applying for them provide a big plus for investors.

Here are 7 super-creative non-owner-occupied mortgage solutions, none of which requires a single tax return to prove your personal income.

As discussed in further detail below:

  • Program 1 does not look into your income at all.
  • Programs 2 through 4 accept alternative income documentation.
  • Programs 5 through 7 offer unusually innovative programs for special situations including loan requirements for multiple properties, urgent short-term needs, and foreign nationals.

Program 1: DSCR or No Ratio

Who is this program for?

This popular program is designed for real estate investors looking to buy or refinance a rental property through a simplified loan application process.

There is no need to provide any income-related documents such as tax returns or W2s since the borrower’s debt-to-income ratio (DTI) is not computed; hence the DSCR loan’s alternative name, the “no ratio loan.” 

Therefore, DSCR is ideal for borrowers who have a lot of debt and/or cannot show adequate income via tax returns. Typically, self-employed, unemployed, and retired borrowers find the DSCR program an ideal solution.

How does the DSCR loan work?

Instead of qualifying based on their own personal income, the borrower qualifies based on the income, so to speak, of the subject property.

Specifically, the lender will calculate the property’s debt service coverage ratio (DSCR). Also called the debt-coverage ratio, DSCR is a ratio used by lenders to assess the property’s income potential compared to the expenses. Essentially, the DSCR is a quick indicator of whether there is enough cash flow to “service” or pay for the associated expenses.

The higher the DSCR, the better the deal cash flows.

Generally speaking, DSCR is calculated by dividing the rental income by expenses:

  • For the rental income, lenders typically use whichever is the lesser of the documented lease rent and the appraised market rent. To determine the appraised market rent, the lender will require the appraiser to complete Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule) or Fannie Mae Form 1025 (Small Residential Income Property Appraisal Report for 2-4 unit properties).
  • The expenses consist of principal, interest, taxes, insurance, and association fees (PITIA).

Some lenders require a minimum DSCR ranging from about 1.15 to 1.25. For example, a DSCR of 1.15 means that the property generates enough income to cover all of its monthly debt payments with a 15% excess.

More lenient lenders allow a minimum DSCR of 1.00 to give a chance to borrowers looking to purchase or refinance properties that do not cash flow as well.

What are other highlights of this loan?

Some lenders may require the borrower to have owned at least one commercial or residential investment property for at least twelve months within the most recent three years.  Another requirement imposed is that the borrower must own their primary residence.

However, more lenient lenders allow for exceptions. For example, see how DAK Mortgage obtained an exception for a first-time investor to purchase a condominium unit in Miami.

Read our guide to learn more about DSCR loan requirements.

But what happens if the subject property has a low DSCR and poorly cash flows? Let’s take a look at 3 programs that do not require the property to be cash-flow positive.

Compared to the DSCR program, these next 3 programs (Lite Doc, Bank Statement, and Asset Utilization) are based on the personal income of the borrower. The income of the property and the DSCR are entirely ignored. Further, what these 3 programs have in common is that they all allow creative, alternative ways to show personal income – no tax returns or tax transcripts required at all.

Program 2: Lite Doc

Who is this program for?

This program is ideal for investors who can provide light documentation of their income and employment, hence the name “Lite Doc.” As compared to a “Full Doc” program that requires two years of tax returns, this program is one step down and requires less intensive income documentation. This avenue is available for borrowers who are either self-employed or employed.

How does the Lite Doc program work?

As the program name implies, the borrower must submit minimal income verification documents. Self-employed borrowers must provide a 12-month profit and loss statement, as well as an accountant letter verifying their length of self-employment. Employed borrowers, on the other hand, must provide a written verification of employment (VOE) verifying their income and employment.

The lender then uses the income to calculate the borrower’s debt-to-income ratio (DTI). The creative lenders in this space typically allow up to 50% DTI, or higher if an exception is made.

What are other highlights of this loan?

The Lite Doc program has simple income documentation requirements, and it is particularly streamlined for self-employed borrowers. Specifically, the profit and loss statement can be self-prepared and does not need to be prepared by an accountant or CPA.

Another appealing feature is that first-time investors or property owners are eligible.

Program 3: Bank Statement

Who is this program for?

This program is ideal for investors who fit on the spectrum between Lite Doc and Full Doc. In other words, they can’t quite provide tax returns to show adequate income, but they can also provide more documentation than a profit-and-loss statement or a written verification of employment.

Specifically, suitable candidates for this program are self-employed borrowers who show regular income through deposits to their bank accounts. Unlike the Lite Doc program, which is open to self-employed and employed individuals, the Bank Statement program is for self-employed borrowers only.

How does the Bank Statement program work?

The lender verifies your income through your:

  • 12 or 24 months of personal or business bank statements; and
  • CPA letter verifying the length of your self-employment, nature of business, ownership percentage, and other details about your business.

The method of calculating your income based on your bank statements varies slightly from lender to lender. However, generally speaking, the lender will take the average of your gross deposits, as reflected on your bank statements, and multiply that average by an expense ratio. The expense ratio is typically 50% but may go as high as 55% depending on your line of business and other circumstances.

The maximum DTI allowed is typically 50% (or higher if an exception is made), more lenient than the conventional loans of traditional lenders.

What are other highlights of this loan?

Like the Lite Doc program, no tax returns are required, and first-time investors or property owners are eligible.

Program 4: Asset Utilization

Who is this program for?

Compared to the Lite Doc and Bank Statement programs, this loan solution is unique because instead of income per se, your creditworthiness is evaluated based on your assets.

Also known as the Asset Depletion program, this is a creative and out-of-the-box mortgage loan designed for borrowers who have a significant amount of assets. Ideal borrowers for this program include retirees, day traders, serial entrepreneurs, and those with trust funds.

How does the Asset Utilization loan work?

No tax returns, tax transcripts, W2s, P&Ls, VOEs, or other employment documents are necessary. Instead, your income will be computed based on your assets.

This program does not need any form of employment verification. Your income will be computed based on your assets, which may include:

  • Liquid cash accounts:  You may declare liquid cash accounts in the form of checking and savings accounts, money market accounts, and certificates of deposit. The lender computes your monthly income using 100% of these assets’ values.
  • Stock market investments and securities: You may declare brokerage, mutual funds, government securities, and publicly traded stocks and bonds bought under your or your business’s name. Lenders typically consider up to 90% of these assets’ vested value to estimate your monthly income.
  • Retirement accounts:   Borrowers may also declare their retirement assets, individual retirement accounts (IRAs), or Roth IRAs. The accounted value of these assets depends on the borrowers’ age but may range from 70% to 90% of their vested values.
  • Cryptocurrencies:  As creative as they can get, alternative lenders also accept your assets held as cryptocurrencies. This feature is something that traditional banks and loans would not even consider because of its volatility. Under the Asset Utilization program, up to 90% of the USD value of your cryptocurrencies is used to estimate your income.

Using the declared assets, the lender estimates the borrower’s monthly income by dividing the value of the post-closing assets by a certain number of months, typically 60 to 84 months.

At least one to three months of statements for each asset must be provided to qualify for this program. Borrowers are also required to have a maximum DTI of 50% to 55% (higher with an exception).

What are other highlights of this loan?

Some lenders have seasoning requirements, meaning the assets must be in the account for a certain amount of time, such as at least 120 days.

While this program is flexible and creative, depending on the lender, some assets are ineligible such as equity in real estate, privately traded or restricted stocks, and any assets held in the name of a business.

If you still see yourself unqualified for the first four programs (or if they do not suit your investment needs), the following are the most unique loans available in the mortgage market.  

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Program 5: Rental Portfolio

Who is this program for?

Rental portfolio loans are for experienced real estate investors who intend to buy or refinance multiple rental properties (usually at least 5 to 7) through a single blanket loan.

This is a great solution to consolidate all debt, unlock any equity in already-owned properties, and purchase new properties – all under one loan with one lender.

How does the Rental Portfolio loan work?

Except for the number of properties covered, the Rental Portfolio loan is similar to the DSCR loan program, which does not require personal income verification—no tax returns, tax transcripts, or other income documents are required, and DTI is not calculated.

The portfolio must be stabilized with leases in place, and most lenders require that each property in the portfolio maintain a minimum DSCR of around 1.10 to 1.25.

What are other highlights of this loan?

Because multiple properties are involved, the typical loan amounts range from $500,000 up to as high as $30-50 million or more. Typically, lenders will require that the borrower have a history of owning and managing commercial or residential investment real estate for a minimum of twelve months within the most recent three years. Thus, first-time investors are ineligible under this loan.

This program is available for purchase transactions and/or refinances, both rate-and-term and cash-out. For example, under the Rental Portfolio program, investors in Orlando, Florida took advantage of this product for 17 Florida rental properties.  Likewise, a foreign national couple from Canada refinanced their 7 existing properties and bought another one under a single, portfolio loan.

Program 6: Bridge Loan

Who is this program for?

Compared to all the other programs in this article, the hallmark features of bridge loans are their speed to the closing table and very short loan terms.

A bridge loan, also referred to as hard money, private, or collateral-based lending, is a short-term loan offering funds for urgent and immediate mortgage needs. It acts as a “bridge” or temporary financing for borrowers who do not meet the requirements for more traditional loans or for those whose closing deadlines do not fit the traditional underwriting timeline.

The bridge loan program is ideal for investors who want to achieve these types of goals:

  • Quickly obtain funds to purchase a rundown property, renovate it over a short period of time, and resell it for a profit;
  • Win the race to be the winning buyer of a “hot” property in a competitive market; or
  • Quickly get started on an investment property project (such as buying a rental property) and eventually refinancing into a lower interest rate under a different program once income stabilizes (such as the Lite Doc or Bank Statement program).

How does the bridge loan work?

DTI, credit score, and DSCR are not necessary to apply for this program. Instead, the lender focuses mainly, if not solely, on the appraised value of the subject property.

The typical term of bridge loans is 6 to 36 months, and there usually is no prepayment penalty, allowing you to flexibly refinance early if necessary.

Given that bridge loans are a temporary form of financing, borrowers should have a clearly defined exit strategy ready before their maturity date to avoid issues. In the context of fixing and flipping investment properties, a typical exit strategy is to finish the fixing portion during the term of the bridge loan and then flip (or resell) the property to pay off the bridge loan before the maturity date.

What are other highlights of this loan?

Bridge loans are available to first-time and seasoned investors alike. Its most important feature is its ability to close really fast which saves a lot of borrowers from losing their target investment properties. For example, using a bridge loan, DAK Mortgage was able to help a Spaniard borrower who was turned down by another lender, and thus, needed to find financing at the last minute. The bridge loan met the urgent deadline, and we were able to close in just 4 days.

For additional information, here’s everything to know about a bridge loan mortgage.

Program 7: Foreign Nationals

Who is this program for?

The program name says it all—it is for foreign nationals who are looking to purchase or refinance residential investment properties in the United States. Foreign nationals are citizens of countries outside the United States.

How does the Foreign National loan work?

The great news is, nearly all of the programs discussed in this article are available to foreign nationals, including DSCR, Lite Doc, Rental Portfolio, and Bridge. Given the additional risk that is associated with lending to foreign nationals, the loan parameters may be stricter (e.g., lower LTVs, higher interest rates), but the broad-stroke outline of each program is generally the same.

For the Lite Doc program, however, the income and employment verification requirements are slightly different for foreign nationals than they are for U.S. citizens as follows:

  • For employed foreign nationals:
  • Letter from the borrower on employer’s letterhead stating information such as position, length of employment, yearly compensation.
  • If applicable, the letter must be translated by a certified translator.
  • For self-employed foreign nationals:
  • Letter from CPA or accountant stating same information as above, and, likewise, must be translated if necessary.

What are other highlights of this loan?

Foreign nationals from certain countries deemed risky may be ineligible for the DSCR, Lite Doc, and Rental Portfolio programs, leaving Bridge loans as the only viable option.

For a wider range of options, here is additional information on mortgages for foreign nationals in Florida.

Why DAK Mortgage for investment rental loans and investment property financing

At DAK Mortgage, we specialize in alternative mortgage solutions, particularly for clients who have faced difficulties in securing loans elsewhere.

Our expertise lies in assisting those previously turned down, leveraging innovative financing strategies to turn rejections into approvals.

With a strong track record of successfully closing challenging loans, we focus on creating tailored rental loans for investors that meet the unique needs of each borrower.

Our commitment is to navigate complex financial situations, ensuring our clients achieve their real estate investment goals in Florida’s dynamic market.

Financing for rental properties is our expertise

FAQs

How much do I need to put down on an investment property in Florida?

The down payment for an investment property in Florida typically ranges from 15% to 30%, depending on the lender and the type of loan. It’s important to consider your financial situation and the property’s potential return on investment when deciding on the down payment amount.

Is buying investment property in Florida a good idea?

Yes, investing in Florida’s real estate market can be a wise decision due to its growing population, strong tourism sector, and favorable tax environment. However, it’s crucial to conduct thorough market research and consider location-specific factors.  Work with a knowledgeable real estate agent, mortgage professional, and other financial advisors.

Is it harder to get a mortgage for an investment property?

Obtaining a mortgage for an investment property can be more challenging than for a primary residence due to the perceived risk. Lenders typically have stricter requirements regarding credit scores, down payments, and proof of income. However, various loan options are available to cater to different investor profiles.

How do I avoid 20% down payment on investment property?

To avoid a 20% down payment, consider alternative mortgage lenders with creative programs and flexible underwriting guidelines. Boosting your credit score can also open doors to more favorable terms and lower down payment options, as lenders often offer better deals to borrowers with strong financial profiles.

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