Financing a rental in California works differently from buying the home you live in. Lenders want a larger down payment, cash left in the bank after closing and proof the rent can carry its share of the payment, and they price the loan for the extra risk. This guide explains each requirement, shows how rental income is counted, and helps you choose between a conventional loan and a DSCR loan before you make an offer.
Quick answer
For a conventional loan on a one unit rental, Fannie Mae allows up to 85% loan to value, so the minimum down payment is 15%. A two to four unit rental needs 25% down. Expect to show six months of the new payment in reserves, plus 2% to 6% of the balances owed on your other financed rentals and second homes, and expect a noticeably better rate at 25% down than at 15%. If your tax returns understate what you earn, a DSCR loan qualifies you on the property’s rent instead of your personal income.
How much do you need to put down on an investment property?
With a conventional loan, at least 15% on a single family rental or condo and at least 25% on a duplex, triplex or fourplex you will not live in. These are the maximums in Fannie Mae’s Eligibility Matrix for loans approved through its Desktop Underwriter system, and Freddie Mac’s limits are similar. Individual lenders can ask for more.
| Property and purpose | Maximum loan to value | Minimum down payment |
|---|---|---|
| One unit rental, purchase | 85% | 15% |
| Two to four unit rental, purchase | 75% | 25% |
| One unit rental, cash out refinance | 75% | 25% equity left in the property |
| Two to four unit rental, cash out refinance | 70% | 30% equity left in the property |
| Two to four units you will live in | 95% up to the baseline limit | 5% (FHA allows 3.5%) |
That last row is the exception worth knowing. If you will live in one of the units, the loan is treated as owner occupied, not as an investment, and the down payment drops sharply. Our guide to house hacking in Southern California covers how that works.
Why 25% down often pays for itself
Fannie Mae adds a loan level price adjustment to every investment property loan, and it grows as your down payment shrinks. On the matrix dated September 9, 2026, the adjustment is 2.125% of the loan amount at 70.01% to 75% loan to value, 3.375% at 75.01% to 80%, and 4.125% above 80%. Lenders usually build that cost into your interest rate rather than charging it at closing, so moving from 15% down to 25% down often lowers the rate enough to change your cash flow. Ask to see both scenarios priced before you decide.
How loan limits affect rentals in Southern California
The 2026 conforming loan limit for a one unit property is $1,249,125 in Orange and Los Angeles counties and $832,750 in Riverside and San Bernardino counties. Loans above $832,750 in the high cost counties are called high balance loans and must be approved through Desktop Underwriter. Above $1,249,125, you are in jumbo territory, where each lender sets its own rules for rentals.
What credit score and reserves do you need for a rental?
There is no longer a single published minimum credit score for loans approved through Fannie Mae’s Desktop Underwriter. For loan casefiles created on or after November 16, 2025, Fannie Mae removed the 620 minimum and the separate 720 minimum for borrowers with seven to ten financed properties, and now relies on its own risk assessment. Lenders can still set their own minimums, and your score continues to drive pricing, so a higher score still saves money.
Reserves for the rental you are buying
Reserves are cash or eligible assets left over after your down payment and closing costs. Desktop Underwriter requires six months of the new property’s full payment (principal, interest, taxes, insurance and any HOA dues) for an investment property purchase.
Reserves for the rentals you already own
If you own other financed properties, you also need a percentage of what you owe on them. Your own home, the property you are buying, properties you are selling and loans being paid off at closing are left out of the calculation.
- One to four financed properties: 2% of the combined loan balances
- Five or six financed properties: 4% of the combined loan balances
- Seven to ten financed properties: 6% of the combined loan balances
For example, if you owe a combined $900,000 on two existing rentals, you need $18,000 for them on top of six months of payments on the new property. Fannie Mae allows up to ten financed properties in total, counting your own home if it has a mortgage.
Tip: Vested retirement and brokerage balances can usually count toward reserves, so you may not need to move them into a bank account. Keep the funds where they are, and let your loan officer confirm how much of each account qualifies.
How do lenders count rental income?
It depends on whether the property already has a rental history in your name.
- Buying a rental. The lender takes the rent from a signed lease or the appraiser’s market rent survey (Form 1007 for one unit, Form 1025 for two to four units) and counts 75% of it. The 25% haircut covers vacancy and upkeep. That net amount is compared with the property’s full payment.
- Rentals you already own. The lender works from Schedule E on your tax returns, adds back depreciation and certain other expenses, and averages the result over the months the property was in service.
- New landlords. If you have less than 12 months of experience managing rentals, a positive rental figure can generally only offset the property’s own payment. It cannot be added to your other income to help you qualify.
Short term rentals are treated differently. Conventional underwriting leans on documented history, so a property you plan to list on a vacation rental site may not get credit for that income at purchase. Many DSCR lenders accept short term rental income supported by market data.
Not sure your rents will count?
John can run your scenario through conventional and DSCR guidelines and show you which one approves the deal, and at what cost.
Conventional, DSCR or something else: which loan fits?
Most investors in Southern California end up choosing between two paths, and the right one depends on how your income shows up on paper.
| Question | Conventional | DSCR |
|---|---|---|
| How you qualify | Personal income, debts and credit, with rent counted at 75% | The property’s rent compared with its payment |
| Tax returns | Required | Usually not required |
| Minimum down payment | 15% on one unit, 25% on two to four units | Commonly 20% to 25%, set by each lender |
| Pricing | Usually the lowest available rate | Usually higher than conventional |
| Owning through an LLC | Loans are made to individuals | Commonly allowed |
| Number of financed properties | Up to ten | Set by the lender |
| Prepayment penalty | None | Common |
When conventional wins
If you have W2 or well documented self employed income, a debt to income ratio with room to spare and fewer than ten financed properties, conventional financing is usually the cheaper loan over the long run.
When DSCR wins
If write offs shrink the income on your tax returns, you are adding properties quickly, or you want to hold title in an LLC, a DSCR loan can approve deals that conventional underwriting will not. Our DSCR loan guide walks through the math and the fine print, and the non QM loans page covers the wider family of alternative documentation loans.
Other options
Self employed investors can also look at bank statement loans, which qualify you on deposits rather than tax returns. Rentals priced above the conforming limit need jumbo financing, and buildings with five or more units move into commercial lending.
What does a rental really cost to own in California?
The mortgage payment is only part of the picture. Build these into your numbers before you commit to a price:
- Property tax. Proposition 13 sets the base rate at 1% of your purchase price, and local bonds and assessments usually push the total higher. Newer communities in parts of Riverside and San Bernardino counties can add Mello Roos special taxes. Ask for the actual tax bill.
- Landlord insurance. A rental needs a landlord or dwelling policy rather than a standard homeowners policy, and coverage in wildfire exposed areas has become harder to find and more expensive. Get a quote before you remove contingencies.
- Rent limits. California’s Tenant Protection Act caps yearly rent increases at 5% plus the change in the cost of living, or 10%, whichever is lower, for many units built more than 15 years ago. It also has exemptions, including some single family homes owned by individuals when tenants receive the required notice. Several cities, including Los Angeles and Santa Ana, add local rent stabilization rules on top.
- Vacancy, repairs and management. Plan for turnover between tenants, ongoing maintenance, larger replacements such as roofs and water heaters, and a manager’s fee if you will not self manage.
- HOA dues. Condos and planned communities count their dues in the payment lenders use to qualify you.
Start with John’s mortgage calculator for the payment, then add these costs to see your true monthly cash flow.
How to prepare before you make an offer
- Decide what the property has to do. Set a target for monthly cash flow, a maximum cash investment and how long you plan to hold.
- Line up your cash. Add your down payment, closing costs and reserves together. Keep the funds in your accounts for at least two months, or be ready to document where any large deposit came from.
- Get preapproved for the right loan. Ask for conventional and DSCR scenarios priced side by side at 15%, 20% and 25% down.
- Check rents and insurance early. Pull rent comparables and a landlord insurance quote for the address, and confirm whether rent limits apply.
- Review the leases. If tenants are in place, read every lease and request tenant estoppel certificates confirming rent, deposits and terms.
- Decide how you will hold title. Talk with your tax and legal advisors before closing if you want to use an LLC, because it may change which loans fit.
Frequently asked questions
How much down payment do I need for an investment property in California?
With a conventional loan, at least 15% for a one unit rental and at least 25% for a two to four unit rental you will not live in. DSCR lenders commonly ask for 20% to 25%. If you will live in one unit of a two to four unit property, owner occupied loans allow as little as 3.5% to 5% down.
Can I use the future rent to qualify for the loan?
Yes. For a purchase, lenders typically count 75% of the rent shown on a signed lease or the appraiser’s market rent survey. If you have less than a year of landlord experience, that rent can generally only offset the property’s own payment rather than add to your income.
Are interest rates higher on investment properties?
Usually, yes. Fannie Mae charges an extra price adjustment on investment property loans that ranges from 1.125% to 4.125% of the loan amount depending on loan to value, and lenders typically pass it on through the rate. A larger down payment reduces it.
How many mortgages can I have with Fannie Mae?
Up to ten financed properties, counting your own home if it has a mortgage, when the loan is approved through Desktop Underwriter. Reserve requirements rise as you add properties. DSCR lenders set their own limits.
Can I buy a rental property in an LLC?
Conventional loans are made to individual borrowers, so the property is usually purchased in your own name. Many DSCR lenders lend to an LLC with a personal guarantee. Get tax and legal advice before choosing how to hold title.
Do I need landlord experience to buy a rental?
Not to qualify for most conventional loans, but without at least 12 months of management history your projected rent will usually only offset the property’s payment. Some DSCR lenders ask first time investors for a larger down payment or more reserves.
John Goodpaster
Senior Managing Director, ARBOR Financial Group. More than 20 years in mortgage banking, specializing in investment property financing in Southern California.
NMLS #230125
DRE #01259719
Licensed in California
Buying a rental in Southern California?
Run the numbers before you write the offer.
John Goodpaster can price conventional and DSCR options side by side and show you the real cash to close, reserves and monthly cash flow on the property you are considering.
Sources and official resources
- Fannie Mae: Eligibility Matrix
- Fannie Mae Selling Guide: Minimum reserve requirements
- Fannie Mae Selling Guide: Multiple financed properties for the same borrower
- Fannie Mae Selling Guide: Rental income from the subject property
- Fannie Mae: Loan level price adjustment matrix
- Fannie Mae: Desktop Underwriter minimum credit score update
- FHFA: Conforming loan limit values for 2026
- California Civil Code section 1947.12 (Tenant Protection Act)
- IRS Publication 527: Residential Rental Property
Information checked September 27, 2026. Loan limits, program rules and assistance funding change, so confirm current terms before you rely on them.
This article is for general education only and is not a loan offer, commitment to lend, or tax or legal advice. Rates, terms, fees and programs vary by lender and are subject to change without notice. All loans are subject to credit approval, underwriting guidelines and property eligibility. John Goodpaster, NMLS #230125, DRE #01259719. ARBOR Financial Group is a DBA of The Turnkey Foundation Inc., NMLS #236669 (NMLS Consumer Access). Equal Housing Opportunity.
