17 Clever Ways to Come Up with a Down Payment for a Rental Property

For most real estate investors, coming up with the next down payment for a rental property is the greatest barrier to buying. Nowhere is the adage “It takes money to make money” more obvious than in real estate investing!

In fact, when we’ve polled in our Landlords & Real Estate Investors’ Hub on Facebook, the most common challenge to investing is always “pulling together the next down payment for an investment property.”

We hear you loud and clear. So we’ve put together an exhaustive guide on exactly how you can beg, borrow, save, and otherwise assemble your required down payment for a rental property.

How Much Do I Need for a Down Payment on a Rental Property?

Like most questions worth asking, the answer to this one is “It depends.” Specifically, it depends on the type of financing you’re borrowing, it depends on your credit history, and it depends on how risky you look to lenders.

But that’s not much of an answer, so here’s a better one: between 15-30% of the purchase price of your next investment property (unless you house hack — more on that later). Where your down payment will fall in that range depends on what kind of loan you use to buy your next investment property.

Conventional Mortgages

On the lower end of the down payment spectrum lie conventional mortgages, usually requiring a minimum down payment of 20% for investment properties. But conventional loans come with far more rules than portfolio loans or commercial loans. Expect high credit, income, and cash reserve requirements among conventional lenders. And they take longer to close, typically 30-60 days.

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Also remember that you will need to pay for private mortgage insurance if you take out a conventional mortgage with less than 20% down.

As a final note on conventional lenders, bear in mind they impose strict rules on the source of your down payment. They want it to come from your own savings, in cash, and they usually require that cash to be “seasoned,” meaning in your bank account for at least two months prior to closing.

That means they won’t let you use many of the options on the list below, because normally they don’t allow any part of the down payment to be borrowed from someone else. However they work great for house hacking — compare mortgage rates and fees on Credible.

Portfolio Loans

The alternative to conventional mortgages is portfolio loans. A portfolio loan is a loan kept in-house by the lender, rather than bundled and sold to a large mortgage servicing company. Examples include local community banks, and online investment property lenders like LendingOne, Visio, or Kiavi.

These loans typically require 15-30% down, settle within 14-30 days, and tend to be more collateral-oriented in their underwriting. In other words, they carefully scrutinize your deal and the property itself, to make sure they agree that it’s a good deal, but have fewer requirements regarding your income.

Many lenders, such as LendingOne and Visio, don’t require income documentation at all!

One other perk is that many portfolio lenders don’t impose seasoning requirements, and don’t ban you from borrowing the down payment. Their attitude is more laissez-faire toward the down payment for investment property loans, more akin to “We’re not paying it, so you’re on your own to pull it together.”

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The downside for this greater flexibility? Portfolio lenders tend to charge slightly higher interest rates and up-front fees.

While these are the two main sources of loans for rental properties, they’re not the only ones. Here are some more rental property financing ideas to consider, before settling on a lender.

Portfolio lenders tend to be relatively fast and easy to work with, as they require far less documentation than conventional mortgage lenders. Here’s a quick demonstration of me submitting a loan application to LendingOne in under a minute: