You can buy investment property with less than 20 percent down, but the cost and terms change

A 20 percent down payment is not a requirement — it is the threshold where lenders stop charging you extra fees. Below 20 percent, you will pay mortgage insurance, a monthly fee that protects the lender if you stop paying. You will also face stricter income requirements, higher interest rates, and fewer loan options. The real question is whether the monthly cost of borrowing more money is worth the cash you keep in your pocket now.

The most common routes are conventional loans with 10 to 15 percent down, FHA loans (which allow as little as 3.5 percent), and portfolio lenders who keep loans in-house rather than selling them. Each has different rules about what property qualifies, how much you can borrow, and what happens if you rent it out when ready versus later.

Key Takeaways

  • Putting down less than 20 percent means paying mortgage insurance every month until you reach 20 percent equity, which adds hundreds of dollars to your payment.
  • Conventional loans at 10 to 15 percent down are available but require stronger credit and income documentation than primary residence loans.
  • FHA loans allow 3.5 percent down on investment properties in some cases, but have occupancy rules and lower borrowing limits than conventional loans.
  • Portfolio lenders and bank statement loans exist for self-employed borrowers and non-traditional income, but charge higher rates to offset their risk.
  • The lowest down payment is not always the cheapest option — comparing total monthly cost (payment plus insurance plus interest) matters more than the upfront amount.

Conventional loans with 10 to 15 percent down

Most lenders will write a conventional loan for investment property at 10 or 15 percent down, but the terms are stricter than for a home you will live in. You will need a credit score of at least 680 to 700 (higher than for primary residences), and your debt-to-income ratio — the percentage of your monthly income that goes to all debts — must usually stay below 75 percent. Lenders also count the rental income from the investment property toward your income, but only after reducing it by 25 percent to account for vacancy and maintenance.

The mortgage insurance on a conventional loan below 20 percent down typically runs 0.5 to 1.5 percent of the loan amount per year, paid monthly. On a $300,000 loan at 10 percent down, that could be $150 to $450 per month on top of your principal, interest, and property taxes. You can remove the insurance once you reach 20 percent equity through payments or appreciation, but that takes years.

Conventional loans also require a full appraisal and proof of reserves — usually three to six months of mortgage payments in savings after closing. For investment property, lenders want to see that you can cover the payment if the property sits vacant.

FHA loans for investment property

FHA loans, backed by the Federal Housing Administration, allow down payments as low as 3.5 percent on investment property in limited cases. The catch is that FHA has strict rules about what counts as investment property and when you can rent it out. If you are buying a two- to four-unit building and will live in one unit, FHA treats it as owner-occupied and gives you better terms. If you are buying a single-family home or multi-unit building purely to rent out, FHA rules are tighter.

FHA loans also require mortgage insurance for the life of the loan if you put down less than 10 percent. The insurance premium is 0.55 percent of the loan amount per year, paid monthly, plus an upfront fee of 1.75 percent of the loan amount due at closing. On a $300,000 loan, that upfront fee alone is $5,250. FHA also has a maximum loan amount that varies by county, usually between $420,000 and $765,000, which limits how much you can borrow.

FHA requires a credit score of at least 580 to 640 depending on the lender, and debt-to-income limits are similar to conventional loans. The process process is longer because FHA loans go through additional review, often adding two to four weeks to closing.

Portfolio lenders and bank statement loans

Portfolio lenders are banks or credit unions that keep loans on their own books instead of selling them to investors. Because they hold the risk themselves, they can be more flexible about down payments, credit scores, and income documentation. Some will write investment property loans at 15 percent down for borrowers with credit scores in the 620 range, or accept bank statements and tax returns instead of W-2s for self-employed borrowers.

The trade-off is cost. Portfolio lenders typically charge 0.5 to 1 percent higher interest rates than conventional lenders, and may require larger reserves. A portfolio loan at 15 percent down might cost you an extra $100 to $200 per month in interest compared to a conventional loan, but it may be your only option if you are self-employed or have irregular income.

Finding a portfolio lender requires calling local banks and credit unions directly — they do not advertise widely. Ask specifically whether they hold investment property loans in portfolio and what their minimum down payment is. Some will only do this for existing customers or for properties in their service area.

Buying with a partner or using a business entity

Some borrowers reduce their personal down payment by bringing in a partner or using a business structure like an LLC. If you and a partner each put down 10 percent on a $300,000 property, you each need $30,000 instead of $60,000. However, both partners will be on the loan and responsible for the full debt, and lenders will count both of your incomes and debts when deciding whether to approve the loan.

Using an LLC or corporation to hold the property does not reduce your down payment requirement, but it can protect your personal assets if someone is injured on the property or if you are sued. Lenders will still require a personal may provide from the owner, meaning you are liable for the debt regardless of the business structure. Setting up an LLC costs $100 to $500 depending on your state, plus annual filing fees.

The real cost of putting down less

Before choosing a lower down payment, calculate the total monthly cost over five to ten years. A $300,000 property with 10 percent down ($30,000) versus 20 percent down ($60,000) saves you $30,000 upfront. But if the mortgage insurance, higher interest rate, and closing costs add up to $200 per month, you will pay $12,000 extra over five years just to keep that $30,000 in your pocket. That money might earn more in a savings account or another investment, or it might sit unused while you pay the insurance anyway.

Compare offers from at least three lenders before deciding. Ask each one for the total monthly payment including insurance, interest, and principal, and ask when the insurance can be removed. Some lenders will remove insurance once you reach 20 percent equity through payments alone, while others require a new appraisal to prove the property has appreciated.

What disqualifies you from lower down payment options

Lenders will not offer 10 to 15 percent down loans if your credit score is below 660 to 680, if you have missed payments in the last two years, or if your debt-to-income ratio exceeds their limits. Recent bankruptcy or foreclosure also closes most doors, though some portfolio lenders will consider you after two to three years have passed.

If you own multiple investment properties, lenders count the mortgages on all of them toward your debt-to-income ratio. Owning three properties with $2,000 monthly payments each means $6,000 in debt before your personal loans and credit cards are counted. That can push you over the 75 percent limit even if your income is high.

If you cannot meet the requirements for conventional or FHA loans, saving for a larger down payment is often faster than waiting for your credit to improve or your debt to decrease. A 25 or 30 percent down payment opens doors with portfolio lenders and private lenders who otherwise would not consider you.

Frequently Asked Questions

Can I use a gift from family for part of the down payment?

Yes, most lenders allow gift funds for down payments on investment property, but you will need a signed gift letter stating the money is a gift, not a loan. The lender will verify the gift came from the donor's account and may ask for bank statements. Some lenders limit gifts to a percentage of the down payment, usually 20 to 50 percent.

What happens if I put down 15 percent and the property value drops?

You will still owe the full loan amount, and you will continue paying mortgage insurance even if the property is now worth less than the loan. You cannot remove the insurance by refinancing into a lower-balance loan unless you bring cash to closing to reach 20 percent equity in the new loan.

Is it better to put down 10 percent or save for 20 percent?

That depends on your interest rate, the insurance cost, and what you could earn with the extra $30,000 to $60,000. If you can earn 8 to 10 percent annually in another investment and the insurance costs 1 percent per year, keeping the cash might make sense. If you have no other use for the money, putting down 20 percent eliminates the insurance and lowers your monthly payment.

Do I have to live in the property first before renting it out?

No, but some loan programs offer better terms if you occupy it initially. FHA loans are cheaper if you live in one unit of a multi-unit building. Conventional loans do not require occupancy, but lenders may offer slightly lower rates for owner-occupied properties. Check with your lender about whether occupancy affects your rate before closing.

Can I use retirement account funds for the down payment?

Yes, but the rules depend on the account type. Traditional and Roth IRAs allow withdrawals for first-time home purchases up to $10,000 lifetime, but investment property does not may have access to as a first home. Self-directed IRAs can hold real estate directly, but the property must be held inside the IRA and you cannot use it personally. Consult a tax professional before withdrawing from retirement accounts, as penalties and taxes may explore.