Investment Property Financing in Tennessee

Down payment requirements

Conventional investment property loans require a minimum 15% down payment for single-family investment properties and 25% for 2–4 unit investment properties. FHA, VA, and USDA loans are not available for investment properties — they require primary residence occupancy.

The 15% minimum applies to single-family properties only. In practice, many lenders prefer 20–25% down for investment properties to avoid the pricing adjustments that apply at lower LTVs.

Rate adjustments for investment properties

Investment property loans carry higher interest rates than primary residence loans. Fannie Mae and Freddie Mac apply loan-level price adjustments (LLPAs) to investment property loans based on LTV and credit score. These adjustments are built into the rate the borrower receives.

The rate premium for investment properties is typically 0.5–1.0% above comparable primary residence rates, depending on the LTV and credit score. DSCR loans from portfolio lenders may offer competitive rates for investment properties, particularly for borrowers with strong rental income.

Reserve requirements

Investment property loans require the borrower to have reserves — liquid assets beyond the down payment and closing costs. Conventional guidelines typically require 6 months of PITI (principal, interest, taxes, insurance) for each investment property owned.

For borrowers with multiple investment properties, reserve requirements can be substantial. DSCR loans often have different reserve requirements and may be more flexible for portfolio investors.

Rental income counting for conventional investment loans

For conventional investment property loans, rental income from the subject property can be used to qualify. Fannie Mae allows 75% of the gross rental income (from existing leases or the appraiser's market rent estimate) to be added to qualifying income. The remaining 25% is a vacancy/expense factor. Schedule E from tax returns is used for existing rental properties with a history of rental income.