How to get a deal with 3.5% down instead of the standard 20%?

Question

I purchased my first investment rental property (a 2/1 in Riviera Beach FL that is renting for $1,075 a month) in October of 2018. I spent nearly all the money I have (All in at a little under $35K) on getting that property, but now I want to purchase my second investment property but I only have $15K left. Is there anyway that I could get a loan where I would only have to put down 3.5% of the values of the property instead of the typical 20% for investment property? I know the 20% will get rid of PMI but I am wondering are there any sources that would do a 3.5% down on a investment property? Any help would be greatly appreciated. Thanks!

Account Closed · Answer

TO PROTECT THE BANKS INVESTMENT IF THEY HAVE TO FORECLOSURE, THEY HAVE EQUITY TO SELL.

Louis Porter Jr. · Answer

But what about a HomeStyle Renovation (HSR) mortgage (https://www.fanniemae.com/singlefamily/homestyle-renovation)? The loan amounts typically fund between 65% – 95% of a property’s purchase price and renovations. This means that typical down payments range from 5% – 35% of the loan amount. Has anyone dealt with these?

Tom Shallcross · Answer

@Louis Porter Jr. - some obvious answers from me, but owner financing and leveraging a partnership to handle the capital are viable options to keep your momentum going. Lastly, a lot of HML will go 90% of purch + rehab, you just need to ensure you have appropriate exit strategies in place.

On your magic 20% question, I'm assuming someone realized a while back that it's the appropriate spread a mortgage company wants to offset the risk of the deal potentially going bad. Not that they want to take over the property, but if they had to, they want to ensure there is enough spread to offset legal costs, evictions, market shifts....etc.

Louis Porter Jr. · Answer

Thanks for answering, Jay. Do you know why the 20% is the "magic number" for investments? I am just curious.

Jay Hinrichs · Answer

Nope.. the 3.5% down is reserved for owner occs.. now if you want to buy a duplex or 4 plex you could use 3.5% down as long as you move in and live there. although 15k may not be enough

How to get a deal with 3.5% down instead of the standard 20%?

How to get a deal with 3.5% down instead of the standard 20%?

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