California loan guide

Investment Property Loans in California

An investment property loan finances a home you will not live in. On a conventional loan, Fannie Mae caps a one-unit purchase at 85% of value and a two- to four-unit purchase at 75%, requires six months of reserves, and counts rent conservatively. A DSCR loan skips your personal income and underwrites the property's rent instead.

In this guide

Key numbers
Who it fits, and who should look elsewhere
Requirements
Real costs
California specifics
Worked example: a $750,000 duplex
How the process runs
Mistakes and downsides, with numbers
Questions people ask

Key numbers

Item	Figure	Source
Maximum loan-to-value, purchase, 1 unit	85%	Fannie Mae Eligibility Matrix, December 10, 2025
Maximum loan-to-value, purchase, 2–4 units	75%	Fannie Mae Eligibility Matrix, December 10, 2025
Maximum loan-to-value, limited cash-out refinance, 1–4 units	75%	Fannie Mae Eligibility Matrix, December 10, 2025
Maximum loan-to-value, cash-out refinance	75% (1 unit); 70% (2–4 units)	Fannie Mae Eligibility Matrix, December 10, 2025
Reserves, automated underwriting (DU)	6 months of the property's PITIA	Fannie Mae Selling Guide B3-4.1-01
Seller-paid costs allowed	2% of price at any loan-to-value	Fannie Mae Selling Guide B3-4.1-02
Experience needed before positive rent counts as income	12 months of property management experience	Fannie Mae Selling Guide B3-3.8-01
Net rental income factor, purchase (subject property)	75% of gross rent — the other 25% is absorbed by vacancy and maintenance	Fannie Mae Selling Guide B3-3.8-02

Figures checked October 14, 2026.

Who it fits, and who should look elsewhere

Fits: you are buying a one- to four-unit rental you will not occupy; you can put 15–25% down and still hold six months of reserves after closing; and the rent, counted the lender's way, covers the property's full monthly cost or comes close.

Look elsewhere: you plan to live in one unit — that is a main-home loan with higher loan-to-value limits and better pricing. You want to qualify on rent alone with no personal income in the file — that is a DSCR loan, a lender program with its own rules, covered below. Government loans are not a shortcut here: FHA and VA loans require you to occupy the property, so they do not finance a pure rental.

Requirements

Program rules (Fannie Mae, conventional path)

The property is owned but not occupied by you. A price adjustment (LLPA) applies to every investment property loan, and the file must be underwritten in DU with an Approve/Eligible recommendation.
Rental income is acceptable only if it is likely to continue. Positive rent can be added to your income only when you have at least 12 months of property management experience; with less experience, rent can only offset the property's PITIA — it cannot create positive income.
Gross rent never counts in full on a purchase. The lender first takes 75% of the gross rent — from the lease, or from the appraiser's market rent on Form 1007 or Form 1025 where the lease is not supported, using the lesser amount where the guide requires it — as net rental income; the other 25% is absorbed by vacancy losses and ongoing maintenance expenses. The lender then subtracts the full PITIA to get adjusted net rental income (ANRI).
When net rental income minus PITIA (the ANRI) is positive and you have at least 12 months of property management experience, the surplus is added to your income; with less experience, a positive ANRI can only offset the property's PITIA. When the ANRI is negative, the shortfall is added to your monthly obligations either way.
Reserves: six months of PITIA on the subject property, plus 2% of unpaid balances on other financed properties if you have one to four, 4% for five to six, and 6% for seven to ten.

Lender programs (overlays, not agency rules)

DSCR loans underwrite the property's rent against its payment instead of your income. Minimum ratios, credit floors and down payments are set by each lender; figures quoted in the market today cluster around a 1.00–1.25 ratio for standard pricing, with some programs accepting lower ratios at a higher cost.
Private and hard-money loans trade speed for short terms and interest-only payments. They are bridge tools, not long-term financing.

Real costs

Down payment: 15% on a one-unit purchase at the agency cap, 25% on two to four units — $187,500 on a $750,000 duplex.
Reserves are real money: six months of PITIA stays in your accounts after closing; it is not available for repairs or vacancies in the lender's count.
Pricing: the investment-property LLPA applies on every conventional investor loan, so the same credit profile pays more than on a main home.
Seller help is thin: seller-paid closing costs are capped at 2% of the price at any loan-to-value — $15,000 on a $750,000 purchase — and cannot fund your down payment or reserves.
Vacancy is your cost, not the lender's: underwriting counts rent as documented; a month empty between tenants comes out of your reserves, not the ratio.

California specifics

California law can lower the rent an underwriter will count. Statewide rent caps and just-cause eviction rules, plus stricter local ordinances in cities such as Los Angeles, San Francisco and Oakland, limit how fast below-market rent can rise to the market rent used in projections. If a business plan depends on raising a long-term tenant's rent sharply after purchase, check the local ordinance before the loan is structured around that number. Short-term rentals face separate city permit regimes, and some lenders will not count short-term rent at all.

Worked example: a $750,000 duplex

Price: $750,000 for a two-unit property. Maximum loan at 75%: $750,000 × 75% = $562,500. Down payment: $750,000 − $562,500 = $187,500.

Reserves: suppose PITIA on the duplex is $4,300 a month. Six months = 6 × $4,300 = $25,800 held after closing, in addition to the down payment and closing costs.

Rent test, conventional path: the units rent for $2,400 and $2,100, a total gross rent of $4,500 a month. Fannie Mae does not count that $4,500 in full. Net rental income = 75% × $4,500 = $3,375. Adjusted net rental income = $3,375 − $4,300 PITIA = −$925. The result is a $925 monthly shortfall, not a surplus: the $925 is added to your monthly obligations whether or not you have management experience. Experience changes only what happens when the answer is positive — with 12 months of property management experience a positive ANRI is added to your income; without it, a positive ANRI can only offset the property's PITIA and counts as zero income. On these numbers there is no positive ANRI for experience to unlock. If the rent were $4,000 instead, net rental income would be 75% × $4,000 = $3,000 and the shortfall added to your debts would be $3,000 − $4,300 = −$1,300. Gross rent would have to reach $4,300 ÷ 75% = $5,733 a month before the conventional rent test breaks even.

DSCR path on the same property: DSCR programs use a different method — gross rent with no 75% factor. Ratio = rent ÷ PITIA = $4,500 ÷ $4,300 = 1.05. That clears a 1.00 floor and falls short of a 1.25 target, so expect either a larger down payment or weaker pricing from ratio-based programs. The same property can therefore show a 1.05 DSCR and a −$925 conventional shortfall at the same time; the two numbers answer different questions under different methods.

How the process runs

Choose the path first. Conventional underwriting reads your tax returns, including Schedule E, and your personal debts. DSCR underwriting reads the lease and the appraisal's rent schedule.
Application and disclosures. A loan on a rental you will not occupy is business-purpose credit under federal rules, so the lender is not required to give you the federal Loan Estimate and Closing Disclosure or the three-day review periods. Many lenders still provide them; some use a term sheet instead. Get the rate, every fee, and any prepayment penalty in writing before you lock.
Appraisal with a rent schedule. The appraiser reports market rent (Form 1007); lenders typically work from the lower of the lease rent and the appraised market rent on DSCR files.
Closing. There is no right of rescission on a business-purpose rental loan. Funds move when the documents are signed and conditions clear.
After closing. Keep leases, rent receipts and tax filings consistent; the next purchase will be underwritten from them.

Mistakes and downsides, with numbers

Budgeting the seller to cover your costs. The 2% cap means a seller credit of $30,000 on a $750,000 duplex is cut to $15,000; the excess is deducted from the price and the loan shrinks with it.
Assuming rent counts in full. Underwriting counts 75% of gross rent, not the rent itself, and a first-time landlord cannot use positive rent as income on a conventional loan in any case; at best it offsets PITIA. Planning a purchase around a $200 a month surplus that underwriting actually scores as a $925 a month shortfall — a $1,125 a month swing — can break the debt-to-income ratio.
Ignoring the reserve stack. Six months of PITIA plus 2–6% of the balances on your other financed properties can quietly add tens of thousands to the cash you must show.
Taking a DSCR loan without reading the prepayment terms. Many DSCR programs carry prepayment penalties in the early years. A penalty of even 2% on a $562,500 loan is $11,250 added to the cost of refinancing early.

Questions people ask

How much down payment does an investment property need in California?

On a conventional loan, 15% for a one-unit purchase and 25% for two to four units, at the Fannie Mae caps of 85% and 75%. DSCR programs set their own figures, commonly 20–25%.

What credit score do I need for an investment property loan?

On the conventional path, plan around a 620 credit score: 620 is the lowest score shown in the Fannie Mae Eligibility Matrix, and it is the conventional program floor used for planning on this site. Desktop Underwriter weighs your whole file — score, loan-to-value, reserves and debts together — and individual lenders commonly add overlays above the floor, so a higher score is often needed in practice for the best pricing. On the DSCR path there is no agency floor at all: each lender sets its own minimum, and floors in current programs cluster in the mid-600s to around 680 (a lender overlay, not a program rule).

Can I qualify without using my personal income?

Yes, through a DSCR loan, which underwrites the property's rent against its payment. The trade-offs are a higher price, a larger down payment in most programs, and often a prepayment penalty.

How many months of reserves do I need?

Six months of the property's PITIA on a conventional loan under automated underwriting, plus an additional percentage of the balances on your other financed properties.

Can I use an FHA loan to buy a rental?

Not as a pure rental. FHA loans require you to occupy the property as your home. A two- to four-unit purchase where you live in one unit is a main-home loan.

Will the lender give me a Loan Estimate and Closing Disclosure?

Not necessarily. Credit on a non-owner-occupied rental is deemed business-purpose under federal rules, so the federal disclosure forms and review periods are not required. Ask what documents the lender will provide, and get fees in writing either way.