How to buy an investment property with less than 25% down

15 Replies

Hi Everyone,

I am researching buying a property to flip, and the mortgage brokers I have spoken with indicate that I will need 25% down if it's not going to be my primary residence. Is there a way to put more like 5-10% down. Or, if I do buy it as a "primary", how long would I have to live there before I could resell it...would selling it after the rehab trigger any penalties? Thanks for your help!

You can buy as an owner occupied and live there for a year without a lender throwing rocks at you. Less than a year you better have a good reason for selling, like job change, income change, changing schools or some life occurrence like a divorce to keep out of claims of mortgage fraud.

If you learn how to solve the problems a seller has with homes that need rehabs, you can "buy" with much less down, sometimes nothing, if you're going to fix an flip in a short period of time. I've never put 25% down on a home, other than my residences. Look to commercial loan terms. Some lenders will still go with a seller's second mortgage too, you put down 10%, seller carries 10/15/20% and the lender takes the rest as a first.

Read the different strategies discussed here on BP, Options, Sub-To, and wholesaling. :)

@Laura Levine make sure you speak with multiple lenders. I also recommends speaking with local lenders not affiliated with a national lending agency. Smaller lenders tend to not follow set algorithms to qualify you. Build a relationship with small lenders because they will be able to more so base there lending on scenario rather then inputting numbers. I would think you could get down to 20% at least, but that number varies regionally.

Originally posted by @Bill Gulley :
You can buy as an owner occupied and live there for a year without a lender throwing rocks at you. Less than a year you better have a good reason for selling, like job change, income change, changing schools or some life occurrence like a divorce to keep out of claims of mortgage fraud.
If you learn how to solve the problems a seller has with homes that need rehabs, you can "buy" with much less down, sometimes nothing, if you're going to fix an flip in a short period of time. I've never put 25% down on a home, other than my residences. Look to commercial loan terms. Some lenders will still go with a seller's second mortgage too, you put down 10%, seller carries 10/15/20% and the lender takes the rest as a first.

Read the different strategies discussed here on BP, Options, Sub-To, and wholesaling. :)

@Bill Gulley

Can you explain the seller second some more. If I buy a piece of property with a commercial loan with 10% down, How does the seller carry the other 10/15/20% Excuse my ignorance but just want to understand this.

If the property is being purchased at less than full market value, you can use a hard money lender to purchase the property. Some of these guys will loan up to 65-70% of the after rehab value. Then you fix it up, and resell. Conventional lenders are not good for flips, IMO.

homepath I think only requires 10% down. If that's a no go for you, you might want to find a seller who will finance the property for you. good luck

Thanks for the suggestions! @Jason C. do hard money lenders have a higher interest rate? How would I go about finding someone reputable? @Aaron Montague thanks for the links...would I be eligible for all of these without have Veteran's staus? @John Nisewonger , I wasn't sure if the 10% down was applicable if it's not going to be a primary residence?

@Laura Levine

If you are not a US vet, you are not eligible for the VA loan. You should be for all of the other options. Each link has an eligibility page somewhere on the site.

someone told me that homepath will do 5% if its your primary residence or 10% if its an investment. I have been told by numerous people that its a great deal and they just want to get rid of the properties.

Hard money isn't worth it if you ask me. They charge like 15% and 2-3 points but will tend to lend you more money. So its a toss up.

@Laura Levine

John is correct, hard money is going to be a much higher interest rate, similar to buying a house on a credit card. I recently did a deal with hard money for 14% interest only payments, and 3 points at closing. However, they have the advantage of being much quicker to fund than traditional lenders, and easier to qualify for. If the deal is really great both of these attributes will help you to be competitive with other investors. Network here on BP for a reputable HML in your area. I am certain our fellow investors have a good recommendation.

A 70/20/10 is with the seller providing seller financing of 20%, they carry back equity from the sale.

I disagree that an HML is quicker, I agree if your bank is BoA or Citi Corp, but a local bank may be just as quick, especially after you build a relationship. I'd guess that those who really favor HMLs have had issues with banks, lack experience, credit, cash, other income, other collateral, etc. from that stand point the HML is easier but certainly not better. Build a good banking relationship as soon as you can. HMLs are an option.

Consider that the money in secondary market loans come from servicing after they are sold, a servicer can lose money on a loan paid off in 90 days, if you're flipping you need to go commercial.

I just spoke with a mortgage broker who specializes in rehab loans, he mentioned that as long as you move into the house you are rehabbing as your primary residence, there is no requirement to stay in the home for a certain amount of time, and that technically I could move out in a few months. @Bill Gulley I know you mentioned that you thought the timeline was closer to a year. Any other thoughts on this?

Originally posted by @Laura Levine :
I just spoke with a mortgage broker who specializes in rehab loans, he mentioned that as long as you move into the house you are rehabbing as your primary residence, there is no requirement to stay in the home for a certain amount of time, and that technically I could move out in a few months. @Bill Gulley I know you mentioned that you thought the timeline was closer to a year. Any other thoughts on this?

Yes, you have a misleading or unknowing mortgage broker. His pay comes from originating loans not getting involved in selling them or servicing them. He's betting he won't get caught giving that advice. The requirement is one year, unwritten for the public but the adopted stance for decades.

I suggest you study what I said above as to timing and excuses for bailing out of an owner occupied loan.

Your broker either doesn't know, which is likely since originators take a class anywhere between 8 to 25 hours (real hours, not semester type hours) to get a license, or the two hours of ethics didn't sink in. :)

@Bill Gulley Thanks so much for your response, I was worried about that. I'm so glad I came across this website so I can get reliable advice!

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