How to get a competitive rate on an investment property loan

If you’re a small business owner thinking about buying your first investment property, financing is likely one of your biggest questions.

Two concerns tend to come up right away: What’s the best rate I can get? and If I already have a lender in mind, how can I improve the terms they’re offering?

These are smart questions — but many first-time investors approach them with a consumer mindset instead of a business one. Investment property loans work differently than personal mortgages, and understanding those differences can save you real money over the life of the loan.

In this article, I’ll draw on my experience overseeing real estate investment deals to break down the main loan options available to small business owners, explain how investment property rates are actually determined, and walk through practical ways to improve your rate and terms — even on your first deal.

How investment property rates work (and why they’re different from a home mortgage)

Unlike owner-occupied mortgages, investment property loans are priced using a more complex risk-based framework. Rates are not simply posted and accepted — they are built from multiple components, many of which can be influenced by the borrower if they understand how the process works. 

For small business owners, this is familiar territory. Just like business credit, pricing reflects risk, cash flow, and financial stability. The most successful real estate investors don’t simply chase the lowest advertised rate.

They understand how rates are built, when negotiation makes sense, and how to present themselves as strong borrowers.

What are the loan options for an investment property?

Investment property financing is not one-size-fits-all. The “best” loan depends on your business goals, timeline, and financial profile. Understanding the main categories of loans — and how lenders view risk within each — is the first step toward understanding rate differences.

DSCR loans (debt-service coverage ratio loans)

Debt-service coverage ratio loans are popular options for rental property investors today, including small business owners buying investment property. These loans are underwritten primarily on the property’s cash flow rather than the borrower’s personal income. Instead of calculating debt-to-income ratios, lenders evaluate whether the rental income covers the proposed mortgage payment. 

DSCR loans are commonly used for long-term rentals and short-term rentals such as Airbnbs, and they are available to investors holding properties in LLCs. Note: Not all DSCR lenders finance short-term rentals, and local zoning laws may also affect eligibility. 

Rates are typically higher than owner-occupied conventional loans but lower than short-term bridge or hard money financing. 

Conventional investment property loans 

Conventional investment property loans are offered by banks and agency lenders for one- to four-unit properties. These loans rely heavily on borrower income, tax returns, and global debt obligations. 

While rates are generally lower than DSCR loans, they come with stricter qualification standards, higher down payment requirements, and limitations on the number of properties an investor can finance. For small business owners, these loans can work well for a first or second property, but they may become restrictive as your portfolio grows.

Hard money loans 

Hard money loans — often called fix-and-flip loans — are short-term financing options used for renovation projects or properties that don’t qualify for traditional financing. These loans focus primarily on the  after repair value of the assets rather than borrower income, which allows for fast closings. These loans are high-cost and high-risk, and are generally best suited for experienced investors who have a clear exit strategy.

Hard money loans are not designed to be held long-term; instead, they serve as a bridge to sale or refinance.

Government-backed loans (FHA, VA)

Government-backed loans require owner occupancy and are not true investment property loans. While some buyers use these programs for “house hacking,” they generally aren’t a fit for small business owners purchasing non-owner-occupied investment properties.

To illustrate how these loan types typically compare, consider the following simplified comparison: 

Understanding which category your loan falls into sets realistic expectations before rate discussions even begin.

How are investment property loan rates determined?

Investment property mortgage rates are not arbitrary. They are built from two primary components: a base index rate and a credit spread. Understanding these elements is essential for any borrower hoping to negotiate intelligently.

Base rate

Most mortgage rates are indexed off U.S. Treasury yields, particularly the two-year, five-year, and 10-year Treasury, depending on the loan term and structure. These Treasury rates reflect the broader interest rate environment and are outside the control of both lenders and borrowers. When Treasury yields rise or fall, mortgage rates across the market generally move in the same direction.

Credit spread

On top of this base index, lenders apply a credit spread. The credit spread compensates the lender for the specific risks associated with the loan. This is where individual borrower and property characteristics matter most. Factors that influence the credit spread include loan-to-value (LTV), borrower credit score, debt service coverage ratio (DSCR), property type, geographic market, and loan size.

See an example

For example, a lower LTV reduces risk and typically results in a smaller credit spread. Strong credit scores signal lower default risk. A higher DSCR indicates that the property generates sufficient cash flow to comfortably service debt. Each of these factors can reduce — or increase — the premium applied to the base rate.

A simplified illustration might look like this:

How to negotiate the rate on an investment property loan

Many first-time investors try to negotiate by telling lenders they’re “shopping for the best rate.” While common, this approach can backfire. From a lender’s perspective, it signals that their time and effort may not be valued, which reduces their incentive to sharpen pricing or invest additional resources into the deal.

A better strategy starts with preparation. Providing complete and accurate information upfront — credit details, liquidity, property financials, and exit strategy — allows lenders to price the loan accurately from the start. Incomplete information often leads to conservative pricing, which later becomes difficult to unwind.

Instead of asking for a lower rate in general terms, investors should ask targeted questions about what is driving pricing. Understanding which components of the credit spread are increasing the rate opens the door to meaningful discussion. For example, if the LTV premium is significant, bringing additional capital to the table may improve pricing.

In my opinion, the best rate negotiations don’t start with pushing back on price. They start with understanding why the rate is what it is. When borrowers ask the right questions and come prepared, lenders are far more willing to work with them.

Relationships matter, too. Clear communication, realistic timelines, and professionalism signal that you’re a borrower worth working with long-term. In investment lending, trust often shows up in the numbers — even if it’s not listed on the rate sheet.

Pre-approval process for an investment property loan

The process to get pre-approved for an investment property loan differs significantly from owner-occupied pre-approval. While minimum requirements vary by loan type, most lenders expect a baseline level of credit quality, liquidity, and experience.

For DSCR and conventional investment loans, lenders typically look for mid-to-high 600s credit scores or better, sufficient cash reserves to cover several months of mortgage payments, and a reasonable leverage profile. Liquidity is particularly important, as it demonstrates the ability to weather vacancies or unexpected expenses.

Unlike primary residence financing, investment property loans are highly property-specific. Lenders need to evaluate the actual or projected rental income, market conditions, and asset quality. This means having a property identified — or at least a representative example — greatly accelerates the pre-approval process.

Pre-approval shouldn’t be treated as a formality. For small business owners, it’s a strategic tool. Working with a lender early helps you make confident offers, move quickly when opportunities arise, and avoid costly surprises late in the process.

The bottom line

Getting the best rate on an investment property loan is not about finding a magic lender or negotiating aggressively at the last minute. It’s about understanding how rates are built, choosing the right loan product for your strategy, and positioning yourself as a strong, informed borrower.

When you approach investment property financing the same way you approach your business — with preparation, strategy, and long-term thinking — better rates and better outcomes may follow.