Low downpayment for investment properties?

Question

Hi all,

I am looking for investment properties in Greater Boston area. Before the pandemic hit, I was able to find lenders that would offer 20% down for investment properties. Today, I can only find 25% down options. That reduces my purchasing power to the extent that I am almost priced out of neighborhoods I want.

Are 20% down loans for investment properties nonexistent now? Does anyone still offer those? What about interest only loans?

Thanks.

Kevin Romines · Answer

If it is 1-4 unit properties, Fannie and Freddie have always been 25% down payment on those.

Some Non-QM or Portfolio lenders were doing as little as 20% down pre-COVID, however they have pared back their terms, so most don't offer that high of an LTV right now. If is commercial which is 5+units, each commercial lender sets their own guidelines. You will have to call around to find out each commercial lenders offerings? Most will be 25% down on those loans as well.

I hope this helps?

Jonathan Bombaci · Answer

@Sefa Demirtas unless you have a pre-existing relationship with a commercial lender almost everyone on the greater MA and NH market increased their terms to be 75% LTV or 25% down, some were at 30% down for a while there. This happened when Covid was ramping up since they got nervous about rent collections and commercial property values. All the banks we work with have not unwound those restrictions yet. I think they will open the 20% Downpayment loans again but no one knows when that will be, we're all anxiously waiting for that since 5% down has a big impact given the pricing in the market. We are starting to see some of the bigger commercial banks lending to very experienced investors at the 20% down but it has been few and far between and to my knowledge completely out of the question for newer investors.

Best,

Jon

Michael Noto · Answer

Surprised you are getting differing loan programs pre and post pandemic considering the real estate market outside of the major cities has gotten better if anything. I would try calling more banks until you find one that fits your needs.

Aaron Montague · Answer

Hi @Sefa Demirtas,

Check out a few of the programs available at the federal level:

https://www.biggerpockets.com/...

Some do multi family owner occupied, others do not.  They change quite a bit but those websites are a good place to start.

If you want 20% down in MA start calling banks and credit unions.  Both change their criteria regularly so the only good way to find out what they are offering is to ask.

Best of luck in your search!

Kevin Romines · Answer

@Sefa Demirtas One correction to my comments earlier. If it is a single family home, you can do that with 15% down payment on both Fannie Mae and Freddie Mac. But you will have mortgage insurance on it unless you put down 20%, at which point you wont have any mortgage insurance. But all 2-4 units are still 25% down payment.

Anthony King · Answer

@Sefa Demirtas if you're really itching to make it happen right away then opening up a HELOC or taking a HEL on a property you currently own would allow you to access some funds. Or a 401k loan. Of course there are risks and potentially negative impacts associated with those that only you could decide if it's worth it. Hard money lenders? Private lenders? Friends/family? I would want a really good deal on a property if you consider these options.

Anthony King · Answer

@Sefa Demirtas if you're priced out by 5% difference are you sure you meet the 6 months reserve requirement most banks require even if it was 20%? You could always ask the seller to do a short term seller finance to assist with the down payment, but not all banks allow this, and if they do, they most definitely will require 1st lien position. If a seller could do 1-5 yr seller finance at 8-12% interest amortized over 20 yrs with balloon payment at the end (all negotiable) maybe you could get it done. Just make sure you have a plan to make the balloon payment by refinacing, saving up, or saving cash flows before the balloon comes due. These deals are hard to come by, but it happens quite a bit on the commercial side. Your best option may be to keep saving, house hacking for a year and find a low DP option (ex. FHA), or finding a more suitable market that you can enter with what you have available now.

Sefa Demirtas · Answer

@Kevin Romines

The fact that Fannie and Freddie had that limit is new to me, makes a lot of sense now, thanks. I guess the 20% down loan I found pre-covid was a portfolio loan, so they had more flexibility.

I need some parameters to narrow down my search. Do you think credit unions or banks are more likely to have portfolio loans? (Not sure what Non-QM loans are or who would offer those)

Sefa Demirtas · Answer

@Aaron Montague

Thank you for the list. I am looking for non-owner occupied multifamily properties, so unfortunately none of these options give me what I want.

Does anyone actually know lenders/banks giving 20% down option? I called a few and they were all 25 down.

Alex Verdugo · Answer

Thank you for that information. It's already become very useful.

Low downpayment for investment properties?

Most Popular Reply