Down Payment % Loan Options

17 Replies

Hello everyone,

I currently own one multifamily in New Jersey which is also my primary residence. I am looking to purchase a second multifamily property. My question is, what percentage down payment is the minimum I am able to put down for different loans? Are there any loans that let you put down 10% for example instead of 20% ?  Would me making this my new primary residence make a difference?  All advice welcome. 

Hi Joseph, I'm a real estate agent and investor in Northern NJ.

Can you provide more details on your current property? Usually thats where I can determine what your options are.

What mortgage did you acquire your home with? (FHA, Conv..)

How long ago?

Price?

Location?

Sole owner?

Home Value and rental income?

I purchased my home in 2019, its a 3 family with an income of $3650 (one unit I live in, and I rent out two so if I move out the cash flow will go up significantly). Its current value is $485,000 or maybe a little more. I am the sole owner and I have a conventional loan. I am located in Union County, NJ. The next property would also be in Union County, NJ. 

What did you buy the home for and what's the mortgage now?

If you went conventional, I would suggest going FHA for the next deal.

3.5% down and it's been over 1 yr so you'll qualify easily (income and DTI aside).

I work in Union County btw.. let me know if you need help with anything there.

Hi. Sounds like you're in great shape! Here's my 2 cents. Set up a heloc on your current property - go as high as you can with LTV. Set up your next purchase as owner occupied. You'll have the heloc for cash later if needed, get a higher LTV on your new deal, with better rate too. Hope that helps. Harry

@Joseph Matarazzo Hi Joseph. If you plan to owner occupy the next property it'll be 15% for a 2 family and 25% for a three or four-family. this is all for conventional Fannie and Freddie type loans. The market is hot for multis right now. Many that I have seen don't make a ton of sense at the prices they are going for. 

If you plan to move into the new place and make it your primary you can get away with the percentages above but if you strictly want to use it as an investment you're looking at 20-25% down for 2-4 family properties. Hope this helps. 

@Shivam Patel It's frowned upon since HUD doesn't want investors gobbling properties up with that program. If you were to go from a multi to a single it may work since underwriting views that transaction differently.

To use FHA again on another multi could be very tough. I personally explored that option and was getting a lot of pushback. Most lenders said I needed to wait 2 years minimum and some even suggested refinancing the primary home to a different loan to show it is truly just an investment. It gets complicated for sure.

@Shivam Patel

There's another trick you can do as well. Instead of selling, you can refinance the FHA loan into a conventional and then do another FHA. There's a few nuances to this, but I've done it with many of my clients, including a couple of my own deals.

Feel free to reach out to me with specifics if you need help.

@Shivam Patel

Correct. 

But if you went conventional on your first deal, I'm assuming you're already halfway there if not closer? (In terms of equity vs the Downpayment)

Homes in NJ have skyrocketed in the past yr so you might already be there in terms of appreciation + monthly payments bringing down the mortgage.

@David Da Silva

I purchased a 3br 2a in boonton,nj for 315k last September using fha but because of my DTI ratio. They made me put down like 10%. Im houshacking but once I move out I should be cashflowing 300$/mo, but If I can figure out the rules and regulations, I could potentially cashflow $800/moif I can create another bedroom. If I choose to get it to 20% I'll have to put down my savings to get it there, but might not have enough for the fees for refinancing. And if I do refinance will I lose my 2.3% interest rate or will I keep it? I've never done this before and I don't want to lose out on my interest rate.

@Shivam Patel

$300 per mo isn't much cashflow, especially given the fact it's only one door. If you lose one month of rent, you lost half a yr of cashflow at least. This is why I only deal with multifamily properties when it comes to buy and holds here in NJ, but that's a whole other conversation. In this case, selling might be your best bet. 

Any multi I look into for myself (or my clients) must have the potential to cashflow at least $800-$1200 per mo when fully rented (we usually surpass this number after bringing in creative strategies).

With that said, if you choose to refi, the rate may go up slightly, but remember that if your 1st loan was FHA, you're also knocking out the PMI which will save you at least $200-$300 per mo my guess.

If my clients want a single, I always advise they do an FHA on a multi first, then do a 5% conventional on a single. That way their 1st deal pays for their home.

Hope this helps...

High LTV are nice but make sure you look with a keen eye on the cash flow. The monthly mortgage payments might be so high that you can't pay. It makes it easier to buy but harder to maintain. Consider saving some money to put more down.