Absolute Minimum Down Payment - High Collateral

5 Replies

Assume that I want to buy a non-owner-occupied property worth $200k.  Also assume I own a $800k property with a $300k mortgage on it (thus, it has $500k of equity).

If I was willing to pledge both the new property ($200k) and give the bank/lender a second mortgage on the owned one ($500k in equity), what would be the lowest down payment I could provide on the new ($200k) property?

I'd like the down payment to be 5-10% because obviously that improves the ROI of my project. From googling, it looks like the down payment will still need to be at least 15% but I don't understand why that is so: with all this collateral, the bank will easily recover all accreued principal, interest, and fees if I do not keep paying the mortgage.

Have you checked with lenders regarding a second on the 800k property for the full 200k or refi cash-out the 200k? Then the second is free and clear with no out of pocket.

I am not sure if a lender would simply take a pledge on your home as guarantee. You would be better off with doing a cash refi of your homestead or getting a HELOC to cover the down payment.

Look into FHA and HomePath loans. They have small down payments (though FHA carries permanent PMI).

Make sure that your property not only provides a good cash on cash return but that it can cash flow with such a high mortgage.

In that situation Id be talking to local portfolio lenders. I wouldn't think youd have to put a dime down....not even closing costs if your a solid risk and find a decent small bank.

If your $800k property is owner occupied, you should be able to get a HELOC that would allow you to purchase the property outright and would probably give you a better rate than a mortgage on a non-owner occupied property.

I think Justin Harris Has a good point and I wished you the best and please let everyone know how it worked out?

Joe Gore

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you