Hello everybody, I'm a first time investor looking to get into rental properties. I live in Northern California at the moment. Recently I was contacted by a lending company from Los Angeles. I believe the company name was "Koncord". In talking to the lady I explained that I wanted to look into financing for an investment property. She proceeded to tell me that In California one needs 20% on an investment, no other way around it. My question to everyone, is this true? Are there anyways around this if it is true? I appreciate any responses. 

Thank you

Jose Quintana

There are ways around financing requirements, however it will depend on what sort of loan you're looking for.  In KY, I've put down as little as 10% on a commercial loan or 5% on a hard money loan.  If you plan to buy with a 30 year fixed rate loan, then it's very unlikely you'll be able to do so without putting down 20-25%.

Hi @Jose Quintana , from what I understand, purchasing a non-owner occupied property that's primary purpose is for investment, requires a 15% down payment if it is a single-family property, and a 25% down payment if it is a multifamily property.  

If it is your primary residence (i.e. live in one unit and rent the others), you can purchase with for as low as 3.5% down (using an FHA loan or Conventional 97). There's generally no way around these sorts of requirements because its a federal guideline issued by Fannie Mae/Freddie Mac. The only "traditional" lender you might be able to find that would do for a lower downpayment, would be a local credit union that keeps loans in-house... although that is rather unlikely.

You could always explore other kinds of funding, like seller financing.

@Jose Quintana  

Standard down payments for non-owner occupied properties are %20-%25

HOWEVER

There are ways of buying an investment property without %20 cash down. You might not get it from that bank or any Bank but its out there. If you are wanting a conventional loan, with those kind of interest rates then you will not get it without Skin in the game. Can you collateralize something of value that you own? Equity in you home you can get at? Have you looked at hard money lenders?

Conventional lenders will most likely always require 20% down. Some lenders will even go 25-30%. The reason being is that you will default on an investment property before you default on a primary residence. Hence, higher risk, they need more of a downpayment.

If you don't have the 20% required, you can go to private lenders for the difference. I haven't spoken to a conventional lender that allows for investment properties to be purchased with less than 20% down.

there is no way around it, you could try and bet a business loan so you could have more capital. They usually make you put 25 percent when there are 5 or more units. 4 or less is still considered residential. What area are you trying to invest in ?

There are so many creative financing methods out there. If you haven't already, you should read the Ultimate Beginners Guide https://www.biggerpockets.com/real-estate-investin...

This is a good start, especially chapter 6 on financing deals. Many people love the idea of partnerships as well. You can structure partnership so that you do all the work and have all the knowledge and your partner brings the money. All profits are then split 50-50. In that scenario, your partner would put the 20% down and you would manage the project, then split profits. No/low money out of your own pocket. Again, there are many financing strategies so my advice is to educate yourself to expert level and network! 

Good luck @Jose Quintana let me know if you have any other questions! 

If your goal is to acquire a distressed/ dilapidated asset and improve it and your entry is well below the current market value of the asset, you could very well utilize hard/ private money to get in for less than 15% down. Other than that, if your goal is to buy something that is more or less turnkey or is at its peak as far as value and use, you will probably need 15% at minimum, but most conventional lenders will cap you at 20% down for SFR's and 25% down for 2-4 units as was stated in a previous post.

What is your goal?  Simply buying and holding something as a rental?  Or are you referring to an 'investment property' as something you will acquire, improve, and resell in the short-term (flip)?  These two different general goals will have different best case financing options attached them due to the nature of the deals themselves...

@Jose Quintana

@Matt Lefebvre is correct with regards to the FHA solution. That's how I got into my first duplex. The interesting thing is that I was informed by my loan guy that I would do the same thing if I wanted to move into an SFR. Furthermore, I've seen SFR's that are technically duplexes as in 2 free standing buildings on one lot. All legal.

If you have the money and would rather get into the place that you've vetted as best you can, you can move in for 6 months and then rent out the place. 

Or you can trying other alternative ways to finance this place. Only thing is, the building you're looking at might be gone when you finally sort out your "alternative" financing. 

I am also facing with the 20% conundrum. The way I see it, partnerships are the best way forward from my end.

Choice, choices, choices!

Originally posted by @Francis A. :

@Jose Quintana

@Matt Lefebvre is correct with regards to the FHA solution. That's how I got into my first duplex. The interesting thing is that I was informed by my loan guy that I would do the same thing if I wanted to move into an SFR. Furthermore, I've seen SFR's that are technically duplexes as in 2 free standing buildings on one lot. All legal.

If you have the money and would rather get into the place that you've vetted as best you can, you can move in for 6 months and then rent out the place. 

Or you can trying other alternative ways to finance this place. Only thing is, the building you're looking at might be gone when you finally sort out your "alternative" financing. 

I am also facing with the 20% conundrum. The way I see it, partnerships are the best way forward from my end.

Choice, choices, choices!

FHA guidelines require the owner-occupant live in the property for 12 mos after closing an FHA loan (as owner-occupied). That said, it's more of an ethical question than a legal one sometimes as I don't think HUD will notice if someone used an FHA loan to buy a home and moves on to something else in 6 months. I would, however, plan to abide by the laws/ guidelines in place. You do certify you will live in the home/ unit for 12 months when you use an FHA loan to obtain a property.

In my area, it's 25% down. Once I started buying +5's I found a couple programs that allowed 20% down. Like a few people have said, there are ways to get creative. For example, we did 10% down on an 8 plex a few years back but we pledged a free and clear single family home as add'l collateral. You could do so with your own home, perhaps. 

@Jose Quintana

Hi Jose,

The quick and simple response to your question is No, that is not true.

We are California lenders, we mostly work in Southern California, and we do loans for less than 20% down, we even have a program for 100% of purchase or more.

However, as others have mentioned, the amount of down and the pricing will depend on the type of loan you are looking for.

Conventional and FHA, on investment property you will most likely be looking at something close to 20% but it will be difficult to qualify for these loans for investment properties and if not paying retail for the purchase the sellers will most likely not want to deal with a buyer with these type of loans.

Commercial lenders, the requirements for qualifying for these loans are a bit more flexible than convention or FHA but still difficult.

Hard money lenders, you will find everything here, from lenders that can give you 100% financing to HML (Hard Money Loans) that are similar to conventional and FHA, and a lot of stuff in between. HMLs are a very useful tool for acquiring property as the likelihood of getting the loan is higher. The idea is to use HML to acquire the property, stabilize the property right away so that the HML can be paid off with cheaper financing when you don't have a deadline, such as closing date, to perform.

Seller carry back or private individuals, probably the most friendly approach but also not always available.

Hope this helps, Good luck!

Originally posted by @Logan Drew :

Originally posted by @Francis A.:

@Jose Quintana

@Matt Lefebvre is correct with regards to the FHA solution. That's how I got into my first duplex. The interesting thing is that I was informed by my loan guy that I would do the same thing if I wanted to move into an SFR. Furthermore, I've seen SFR's that are technically duplexes as in 2 free standing buildings on one lot. All legal.

If you have the money and would rather get into the place that you've vetted as best you can, you can move in for 6 months and then rent out the place. 

Or you can trying other alternative ways to finance this place. Only thing is, the building you're looking at might be gone when you finally sort out your "alternative" financing. 

I am also facing with the 20% conundrum. The way I see it, partnerships are the best way forward from my end.

Choice, choices, choices!

FHA guidelines require the owner-occupant live in the property for 12 mos after closing an FHA loan (as owner-occupied). That said, it's more of an ethical question than a legal one sometimes as I don't think HUD will notice if someone used an FHA loan to buy a home and moves on to something else in 6 months. I would, however, plan to abide by the laws/ guidelines in place. You do certify you will live in the home/ unit for 12 months when you use an FHA loan to obtain a property.

  Yes. 12 months, not 6 months. Either way it's a great way to get going. Make no mistake about it. The potential or existing income from the extra unit will will factored when you apply for the loan. A huge plus.

Originally posted by @Luka Milicevic :

Conventional lenders will most likely always require 20% down. Some lenders will even go 25-30%. The reason being is that you will default on an investment property before you default on a primary residence. Hence, higher risk, they need more of a downpayment. 

If you don't have the 20% required, you can go to private lenders for the difference. I haven't spoken to a conventional lender that allows for investment properties to be purchased with less than 20% down.

Ok I understand that lenders believe I will default on an investment property before my primary residence. But what if I don have a mortgage or rent in my primary residence. So that would put my investment property as the only property I would own. (This would be my first deal.) Is there any leverage in that with a lender?

Originally posted by @Jose Quintana :

Hello everybody, I'm a first time investor looking to get into rental properties. I live in Northern California at the moment. Recently I was contacted by a lending company from Los Angeles. I believe the company name was "Koncord". In talking to the lady I explained that I wanted to look into financing for an investment property. She proceeded to tell me that In California one needs 20% on an investment, no other way around it. My question to everyone, is this true? Are there anyways around this if it is true? I appreciate any responses. 

Thank you

Jose Quintana

 HI Jose,

Usually when you hear an absolute answer like " 20% down is the only way you can do it" its usually not true as the answer always varies.

Now when talking about conventional financing on properties 1-4 (financed properties) you can buy SFR with as low as 15% down but, the reality is that the pricing is so bad with 15% that most people will put 20-25% down.

Others here have noted that hard money can buy properties with 20% to as low as 0% down  depending on how good of a deal you have  deal, level of experience, financial wherewithal, and other hosts of factors.

It depends on the lender your going with ultimately. 

15% minimum through Fannie Mae. Tack on some mortgage insurance for the lifespan of the amortization. 20% is the standard as others have said. Able to work with creative financing; a simple search in the top right bar will bring up dozens of links and info.

For conventional loans, anything less than 20% typically requires PMI as well. Even with PMI, and depending on seasoning requirements, you could refi/cash-out in 6 to 12 months and jettison the PMI as the same time. Non-conventional options to consider include Seller Financing, etc.

You could borrow the downpayment from a hard money lender and then refinance into a conventional mortgage

Originally posted by @Jose Quintana :

I have closed large commercial loans on investment properties with less than 20% down. We have structured these deals with a 75% 1st mortgage and a 10% mezzanine debt. The first is typically at market and the mezz loan is typically higher in the 10-13% range.

As for CA, I do not believe there is any law that states CA originated loans have to have a minimum of 20% down.

I closed a large construction to perm loan at 100% of cost this past May.

Mark

The correct answer is IT DEPENDS!

What type of property? How many units? What state?

What is your credit like? What is your income like? Are you self-employed? How much down do you have? How long are you planning to keep the property?

All of those and a few more are variables lenders look. 

IF you want the lowest rate, you would need to go for a traditional lender and they would ask for good credit and more down payment.

IF you use creative financing, you might not need to worry about your credit and could buy with less down. HOWEVER our interest rate will be at least 9% higher.

IF you are buying a property that needs work at a good low price, you may consider going for a hard/private money option WITHOUT pre-payment penalty. THEN fix it to increase the value and equity. THEN refinance with a traditional lender to reduce the rate. 

@Juan Carlos Quiroz Zolezzi FHA programs are NOT for investment property. FHA stands for Federal Housing Administration, and is a federal program that has been in place since the 1930s. It's goal is helping stimulate the housing market by making home loans accessible and affordable to OWNER OCCUPANTS.

@Josie Roman

The question was: Is it true that in California one always needs 20% on an investment?

The answer is: No, that is not true. There are many options around that.

As for FHA not being for investment that is not precise. FHA may be for investment when borrower intends to live in the property, this is specially important on multi units. FHA may also be used for investment when the borrower moves out and in fact, it is possible to refinance an FHA loan with an FHA streamline. FHA may not be used for purchase money on investment properties if the borrower will not be living in the property.

@Juan Carlos Quiroz Zolezzi That is NOT precise. 

1) There is NO state of federal laws about how much down payment a borrower needs, BUT if you want the best terms, you need to put more down, specially if you are buying "as an investment", which typically means as a non-owner occupied. Also the loan amount and the property income would influence the amount of down payment a lender requires

2) FHA only finances 1-4 units, NOT multi units, and ONLY when the borrower intends to live in the property. The borrower might move out after closing but the s/he MUST intend to occupy, SO if you already own your primary residence, you will have a hard time getting an FHA loan.

Does anyone know any banks only require 20% down.