5% Down on Conventional Loan - Realistic?

10 Replies

Hi all!

I just landed a job in healthcare in the Charlottesville, VA area. The market here isn't a good place to invest in real estate, so I'm looking for properties in other cities/states. I want to invest using a buy-and-hold strategy with multi-family homes, maybe a triplex or a quadplex to aim for cashflow from rentals.

Since I want to start investing as soon as possible and I am not planning to live in the house I am buying (disqualifying me for an FHA loan), I would like to know, what are the chances these days of getting a 5% down on a conventional loan approved?

Apart from having good credit (which I do have), what are some other factors lenders will look at when considering a 5% down payment with PMI? Work stability? Salary? I will be making around $46,000 a year from my job at a very good company.

@Daniel Monte de Ramos  

Unfortunately, 5 percent down for a conventional investment property doesn't exist, at least from what I have seen. Fannie Mae and Freddie Mac require 25 percent down for a multi-family. 

Oh. That's odd.. A quick google search on "5% conventional loan" has lots of hits.

For owner occupied, its possible. For a purely investment property, 15% down is the lowest I've seen for convenational loans. And that's going to add PMI into your costs.

If you have just started in a new career, lenders may want to see some time on the job.  Two years, I've read, but I've not heard that specific number from a lender.

@Jon Holdman  is right on. My wife and I baught a duplex this summer for $49,000 and we only had to put 5% down in,  but ONLY because we were occupying the property.  

Non owner occupied downpayments are usually %25 or more for conventional loans. 

It can be difficult to get approved for a loan if you don't have 2 years experiance in the same feild of work.  Did you have a healthcare job prior to this new one? 

congrats on the new job!

We have done 5% conventional. The kicker is that they have to be personals! 15% is the lowest for pure investments!

That being said! Have you looked at your maker for a personal? Since your young have you thought about buying a 3 or 4 bedroom house with 5% down and renting out all the rooms? Than your living free, building equity and making friends! An added plus is when you move out you have an investment that is cash flowing and you only but 5% in!

I have found that personals will work great even if traditions don't make sense! We have used both personals and investments to build our investment portfolio

Nope, sorry, but Jon is right.  And he is also right that just having started a new job is also going to be held against you, especially if you don't have a history of earnings at your present level.

You can also look at doing a commercial loan (5+ units)... they will sometimes allow you to have a seller carry as part of the down payment... get 70% from the primary lender (bank) and have the seller carry a 25% 2nd position note.

Thanks for all the replies.

To answer your questions, I have worked in healthcare for quite some time, although not making what I will be earning at this new job. Also, prior to starting this new job, I have been in respiratory therapy school for 2 years full-time with no income.

I have known many nurses who started out fine with FHA loans at 3.5% down a few months into their job after graduation despite not having any previous work experience. Apparently, lenders may consider clinicals (or internships, for those not in the healthcare field) as "work experience." They did plan to occupy the property, however, so an FHA loan was no problem.

I think the biggest challenge I have with regards to starting out with an FHA loan for either a single or multiple home is the area I live in. Charlottesville, VA is a predominantly college town with many well-established housing rental companies. One company, Eagle's Landing, has 800 rooms available, while University Place has 600.

The place I will be renting is a 4 bedroom 4 bath apartment with shared kitchen, living, dining, and in-house washer/dryer. Water is free, and free electricity/gas for up to $120 for the whole house. There's a bus to and from work every 30 minutes, and the community has a pool, fitness center, and business center. For a fully furnished room, all this will cost me $465 a month: that's a pretty good deal, and I really don't think I will have much of a chance to compete for tenants if I ever end up buying a duplex/triplex. Also, since most potential tenants will be students, it will be really hard to get cashflow during the summer months when nobody will even be staying.

Anyone find success owning and renting out in a college town like mine? Perhaps I am simply being too negative..

You're being too negative. :)  I agree there are a lot of apartment complexes and new ones being built.  I think that young professionals/adults are interested in living in multifams or sfhs.  I own real estate in Charlottesville, but since I"m not particularly interested in renting to students I'm not concerned with places like Eagle's Landing.  The cost of housing is higher here than a lot of places though.

I agree with Carrie on this one.  The rental market to students is best left to larger companies or the lucky folks with core student properties close in to the university.  It might be tempting to look for the cheapest property possible but the demand for good locations is massive in Charlottesville (and I'm guessing other college towns) and this is an owner's market with respect to rents.  I'd avoid buying in a place like Eagle's landing personally but I also know folks who have made an attractive income owning apartments and renting at rates as low as you've found.  I don't think you'll get as much appreciation on the periphery of town as you would in core areas. . . look to Buffet on that one and pay up for the quality, you'll be glad you did. 

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