Investor · Saint Paul, MN · Member since 2015 · 9 posts · 1 vote
Are there specific rules around raising the 20% down payment that most banks require? Would raising just the 20% from private lenders and then getting a loan based on the down payment not be looked at favorably. Any guidance would be appreciated. Thanks.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Sarmad Abbas Most conventional lenders don't want the downpayment to be borrowed. Now if you raise the money through private lenders and let it sit in your bank account for a few months they probably wouldn't know. However, you still have to answer the question "is any part of the downpayment borrowed?" on the mortgage application.
Keep in mind the private lender is probably going to want a second mortgage for the investment so you'll have to address that paperwork.
I had a similar situation on the first rental property I purchased. The way I got around it was I used my own funds upfront from my 401k then borrowed the money from a family friend after closing.
Note: you can use funds from your IRA or 401k for the 20% down payment.
Have you looked into hard money then refinancing? This is a great way to avoid the 20% down payment if you have a good deal.