What to Expect for a Rental Property Down Payment

If you’ve got extra cash, you might consider investing that money in a rental property. Rentals can help diversify your investment portfolio and build financial stability. If you haven’t purchased a rental before, there are a few things you need to know about the down payment.

How Much You Can Expect to Put Down

Put simply, you can expect to pay more upfront for a rental property when compared to a standard home mortgage. Most rental property loans require a down payment of at least 15 percent. That’s the bare minimum, and that’s only for people with the best credit. The truth is, most people can expect a minimum down payment of more like 20—25 percent down.

You can also expect to pay more than you would for a typical home’s closing costs. Interest rates for a rental property loan will most likely be higher as well, since there’s more risk associated with a rental property investment.

How to Reduce Your Minimum Down Payment

If you want to minimize your down payment, consider a rental property with fewer units. The minimum down payment for a single-unit rental property mortgage can be as little as 15 percent. If you’re buying multiple rental units, that down payment minimum will rise as high as 25 percent.

Living in one of the property’s units will drastically expand your loan options, including options for lower down payments. You can find FHA loans that require as little as 3.5 percent down if you plan to live in the property. Living in the property may also help you qualify for down payment assistance.

Keep in Mind…

For many lenders, gifts won’t qualify as part of your down payment. That means your parents can’t help you put money down for your rental property purchase.

If you need a way to scrape up a little extra cash to meet the down payment requirements, home equity loans can count toward your down payment. If you’ve built up enough equity in the home you currently live in, you can borrow against that amount to help fund your down payment and closing costs.

This is a very basic overview of rental property down payments, but the down payment is just the beginning. If you have any questions about rental property down payments or what comes next, leave them in a comment below. And remember, I’m always here if you have any questions or are ready to get started.


Common Closing Costs (and How to Limit Them)

Buying a new home is one of the most exciting events in your life, but the enormity of it all can be daunting. You’ve got to set your price range. Then you need to research your new neighborhood. And before you move, all your belongings will have to be packed into boxes.Read More


10 Tips for New Year Financial Planning

The new year is a time of both reflections and resolutions. It’s a chance to evaluate your life and think about what you hope to accomplish in 2019. If you haven’t settled on a resolution, or you want to take on another one, there are a few smart financial moves you should think about.Read More


Self-Employed? Here’s What You Should Know About Mortgages

Around 10% of all U.S. workers are self-employed. There’s an idea floating around out there that it’s much harder to get a mortgage if you’re a business owner. That’s not true, but there are a few things to keep in mind, and you’ll need to provide some extra paperwork for us. Here are the things you need to know about getting a self-employed mortgage.Read More


Mortgage Terms You Should Know

You’re ready to get a mortgage and suddenly you start hearing and seeing all of these terms you’ve never heard before—APR, DTI, due diligence. What do they all mean, and most important, what do they all mean for your mortgage?Read More


The True Cost of Maintaining Your Home

One of the biggest unknowns for many homeowners and potential homeowners is the real cost of maintaining a home. There are all kinds of expenses when you own a home, and it’s wise to plan for them in advance so that you’re not scrambling for money when something comes up. And trust me, there are many of those times when you’re a homeowner.Read More