Loan types for first rental property

3 Replies

My wife and I are interested in purchasing our first rental property and are looking for ways to finance. We have a decent amount of capital saved but don't want to sink 20% down on a property. We purchased our first owner occupied home at 5% down this past April where we currently live. I understand that type of financing may not be available for rental properties, correct? However, I have heard about portfolio loans but admit my knowledge on the matter stops at the name. Thanks in advance!

The best loan you can get is the FHA with 5% down. But as you stated, it needs to be owner-occupied. So you can either live there for 2 years and go buy/live-in another and keep going like that. You can also ‘house hack' with an FHA loan in a duplex/tri/quadplex and live in one... but you need to have the right attitude to survive that :)

Most other loans require 15-25% down these days. Very few banks will wiggle on that because of laws and risk aversion. You may be able to find someone to loan you hard money for less down, but the interest rate/points will definitely be higher.

Originally posted by @Michael Klaus :

My wife and I are interested in purchasing our first rental property and are looking for ways to finance. We have a decent amount of capital saved but don't want to sink 20% down on a property. We purchased our first owner occupied home at 5% down this past April where we currently live. I understand that type of financing may not be available for rental properties, correct? However, I have heard about portfolio loans but admit my knowledge on the matter stops at the name. Thanks in advance!

 Your solution has a few steps to it.

Because already have your owner occupied property and won't be able to get a 4 unit with just 3.5% down (FHA) and don't have the requisite 20-25% down, you may have to go with:

  1. Hard money loan.  You can probably get the acquisition piece, in many instances with just 10% down.
  2. Renovate the property with the hard money lender's money (paid back in draws after you've completed the work)
  3. Once the property is stabilized (no construction and has a tenant), get a portfolio loan that has low seasoning  and a 30 year fixed option based on the new appraised value.

Stephanie

The best terms you're going to get are going to be with the 20-25% down traditional mortgage. Portfolio loans, hard money, anything... will all be more expensive. Anything less than 20% down is going to trigger PMI, and for an investment property, that can be a problem. Assuming you actually want any cash flow...