down payment? How much and where to look?

4 Replies

I'm looking to purchase my first rental property. I keep hearing about 3% down mortgages from lenders like freddiemac and such. But I wanted to know how much should I be prepared for to get a mortgage on a property? 5%? 10%? 20%? 25%?

i'm looking for the right place to start looking for lending vendors

Property will be held in an LLC and i'd like to go with at least down as possible, plus CC

For conventional loans, if you're going to live there you can put down as little as 3.5% for an FHA loan. This works well for a multifamily, you live in one unit, and rent the other 1-3 units, to pay your rent.

As for non owner occupied conventional loans, you're looking at 20-25% down, depending on the lender. As far as I know this is a rule imposed by Fannie Mae/Freddie Mac - because most lenders turn around and sell your loan it needs to meet these standards.

You can look into portfolio lenders. For them there's no hard limit, though I don't think they'll let you put down less than 10%. That said, I don't know much about them, so someone else can speak to them better than I can. The rationale being, these lenders are keeping your loan in their on portfolio, so they do what they want. They'll generally charge higher rates though.

You can look into seller financing if you're going to buy a home from someone who owns their property free and clear. You may be able to negotiate quite low down payments with them.

There's also subject-to financing, where you assume someone else's loan. Since you're just now paying their mortgage, there's no downpayment, but the seller may require you pay them some cash up front.

You can also buy an undervalued property, wait until it seasons, and do a cashout refinance once it appraises for a higher value. Basically conventional lenders will only give you some amount of the purchase price (say up to 80%), but after a seasoning period (generally 12 months) they'll lend you based on the appraised value. 

You can partner with an investor who has money, have them put the downpayment down provided you can add some value to the deal that isn't cash related.

tldr; If you're going to live there - factor on 5%, if you're not, factor on 25%

For a residential single family income property you're looking at 20% down, but as @John Matthews  stated, the exception is if you are going to live in one of the units for a multifamily property.  

Shop local lenders because I've found a few that'll do 15% on SFR.

@Evan Griffiths it is my understanding that you will not be permitted to place an FHA financed property in an LLC. You can only place a property in an LLC if it purchased through a commercial loan. Double check with your attorney but that is what mine explained to me.

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