The most competitive form of financing for investment property comes from loans underwritten to Fannie Mae or Freddie Mac guidelines. You can expect to put 20 to 25 percent down and a long term interest rate might be as high as a fullavoiding the jumbo penalty percentage point more compared to a loan for a primary residence, but the terms are still better than other mortgage products offered by banks to finance rentals.

As long as the lender approves the loan using the required standards, the application will be approved under the more favorable terms.

There are several requirements to meet these standards, such as a minimum credit score, verified income and others. Yet one of the requirements is a maximum loan amount. In order to qualify for these loans, the loan amount cannot exceed $417,000. There are areas deemed “high cost” that will allow a single family home loan up to $625,500, but in most places, the $417,000 limit is in play.

What happens if the loan amount is above $417,000? You can still get financing, but it becomes more expensive still and is considered a “jumbo” loan. Jumbo loans will require more down and the interest rate will be another percentage point higher than for a loan of $417,000 or less. That can mean the interest rate may be as much as 2.00 percent more than what a conventional mortgage rate can be in the open market. That can seriously affect your cash flow. So what do you do?

The obvious answer is to put more money down to get to the $417,000 level. But if that’ not the route you want to take, you might consider taking out two mortgages on the same property, a first mortgage and a second.

The first loan would be $417,000 and a second smaller mortgage for the remaining balance. Say you find a property for $550,000. If you put 20 percent down, the balance is $440,000. You can then obtain a first mortgage at $417,000 to avoid the jumbo penalty and take out a second note for $23,000. Yes, the rate for the second is higher than the jumbo rate but the loan balance is relatively insignificant, keeping the payments low.