How to avoid the 20-30% down payment

15 Replies

Hello Everyone. 

I'm looking to invest in my next rental property and I would like to avoid depleting my cash. Is there a way to get around putting 20-30% down? The fact that I am looking to buy multifamily properties limits my options as to what traditional loans are available to me. For example, Fannie Mae and Freddie Mac loans are only available for single-family homes. 

I am aware of private lenders, however, I have no idea where to go looking for them.

Any advice is greatly appreciated. Thanks in advance for all your comments!

Shanai Inns

You can pledge some other type of collateral, options being:

1. your primary residence

2. a certificate of deposit at the institution or another institution

3.  a co-signer's piece of collateral, etc.

4.  car or car collection, or some other personal property that you could put up

Also, you could have the seller carry the 2nd mortgage to avoid a downpayment on a shorter term, etc.

Sometimes offering to put the term of the loan on a shorter amortization or an earlier maturing date would allow you to keep down payment smaller and give you flexibility down the line.  

Hope some of that helps and good luck!

Originally posted by @Shanai Inns :

Hello Everyone. 

I'm looking to invest in my next rental property and I would like to avoid depleting my cash. Is there a way to get around putting 20-30% down? The fact that I am looking to buy multifamily properties limits my options as to what traditional loans are available to me. For example, Fannie Mae and Freddie Mac loans are only available for single-family homes. 

I am aware of private lenders, however, I have no idea where to go looking for them.

Any advice is greatly appreciated. Thanks in advance for all your comments!

Shanai Inns

 Actually, Fannie and Freddie loans are available for 5+ multifamily.  You can get 80% LTC including rehab with FNMA.

If you are buying a rental property, you are going to put AT LEAST 20% down with conventional or hard money.  If you hear about a program for less, they are not for real, OR, they won't have money much longer.  Most multi-family properties will require 25% down payment or 30%+ if you are over 4 units.  You can pledge a myriad of other things, but it will not change the fact that you will need 20%+ down payment for a lender to take the risk on you paying them back.  If you need cash from an unconventional source - try your family.  They already love you enough to take that kind of risk on you.

@Darren Eady

I hate to say it, but that is not correct.  There is a way to buy a rental without putting 20%+ down.  An investor can buy a distressed property using hard money to acquire and rehab the property.  Once the rehab is done, they can refinance with a conventional lender into a long term low interest loan.  We have been doing this for years with clients and they have had great success.

You may not get into it for No Money Down, but it is certainly much less than the 20%+ down that a typical purchase would require.  You have built the equity into the property by rehabbing it, negating the need for 20% down.

This isn't a cash out refinance.  It will be a rate and term refinance.  You will not be pulling any cash out.

There isn't a seasoning period for a rate and term refinance, and if a lender is telling you that it will be an overlay for their specific program.

@Sean Blomquist this sounds like a great strategy, something I would like to incorporate myself. My question is, if a HML will only loan 75% of ARV, and the finished product amount is 100,000 ARV, and your purchase price is 80,000. Would you not have to put that amount down to satisfy the HML? The spread between the 75% and 80,000 purchase? I hope this make sense.

I'm asking to make sure I'm thinking this through correctly, and 5% is still much better than 20%.  We're in that same place now, that we could buy two more homes this year, but that would deplete our capital. 

Look forward to your response, thanks for the help.