So you've set your sights on becoming a real estate investor. Fantastic! But before diving headfirst into that perfect property listing, there's a crucial factor to consider: the investment property down payment. Unlike traditional mortgages for primary residences, investment property financing often requires a higher initial investment.
Here at Park Place Finance, we understand navigating the world of investment property down payments can be confusing. Let's break down the need-to-know details:
The Minimum Down Payment:
Typically, conventional lenders require a minimum down payment of 15% for investment properties. This means for a $100,000 property, you'd need $15,000 upfront. However, this is just the starting point. Many hard money lenders like ourselves offer even more flexibility.
Why a Higher Down Payment Might Be Smart:
While a 15% down payment might seem achievable, consider the benefits of putting down more. A larger down payment translates to a smaller loan amount. This lowers your monthly mortgage payment and reduces your overall borrowing risk. This can be especially attractive to hard money lenders, potentially leading to more favorable loan terms.
Beyond the Minimum: The 20-25% Sweet Spot:
Many experienced investors target a 20-25% down payment for their investment properties. This sweet spot offers several advantages:
Stronger Application: A larger down payment demonstrates financial commitment and responsibility, boosting your application with both conventional and hard money lenders.
Reduced Private Mortgage Insurance (PMI): If your down payment is less than 20%, you'll likely be required to pay PMI, which adds to your monthly payment. A higher down payment eliminates PMI, saving you money in the long run.
Increased Cash Flow: Remember, your investment property's rental income should ideally cover the mortgage payment. A larger down payment translates to a lower mortgage, allowing for potentially greater cash flow from your investment.
The Hard Money Lender Advantage:
While conventional lenders have stricter down payment requirements, hard money lenders often provide more flexibility. We understand that getting started in real estate investing sometimes requires creative financing solutions. At Park Place Finance, we can discuss your specific situation and explore options that might not be available with traditional lenders.
Remember: An investment property down payment is a crucial first step, but it's not the only factor. When considering how much to put down, factor in your financial goals, risk tolerance, and the property itself. Consulting with a financial advisor and a reputable hard money lender can provide valuable guidance on crafting a successful investment strategy.
