One of the biggest hurdles to buying an investment property is the down payment. Unlike a primary home, investors usually have to put more cash down up front. Understanding the requirements and what moves them helps you plan accurately instead of guessing.
Why do investors put more down?
To a lender, an investment property is riskier than a primary home. If money gets tight, people tend to protect the home they live in before the rental. So lenders require a larger down payment to reduce their risk.
Down payment by loan type
Conventional investment loan
- Single-unit home: typically 15-25%
- 2-4 unit property: typically 25% or more
Putting 25% down instead of 15% often unlocks a better rate, so many investors weigh putting more down to save over the long run.
DSCR loan
Usually requires 20-25% or more. Because this loan skips personal income documentation, lenders offset that by asking for a larger down payment and reserves.
Second-home loan
If the property qualifies as a second home (you use it yourself part of the time), the down payment can be lower — but the occupancy rules are strict and usually do not apply to a year-round rental.
Factors that can change your down payment
- Credit score: a higher score can open up a lower down payment and a better rate
- Unit count: multi-unit properties usually need more down
- The property's DSCR: strong cash flow can help with terms
- Reserves: lenders want to see cash left over after closing
Do not forget the costs beyond the down payment
The down payment is only part of the total cash you need. Also budget for:
- Closing costs: typically 2-5% of the purchase price
- Reserves: several months of payments in the bank
- Repairs or furnishing: especially for a short-term rental, setup costs can be significant
Is there a way to reduce the cash you put in?
Some investors tap equity from a home they already own — through a cash-out refinance or a HELOC — to fund the down payment on the next property. This is a common strategy, but it needs careful math because it increases your total debt. It is worth discussing based on your specific situation.
The right down payment depends on the loan type, the property, and your profile. If you want to know how much to prepare for a specific deal, William Trinh (NMLS 2837392) is happy to talk at no cost and help you total up the cash you will need before you start.