Owning a rental property is a popular way to generate income and build wealth. For aspiring landlords, one of the most common questions asked is: How much of a down payment is needed for a rental home? While the overall process of buying a home is similar, there are different expectations when it comes to mortgages and down payments for investment and personal-use residential properties.
Requirements will vary by lender, loan type, property type, credit score, cash reserves, debt-to-income (DTI) ratio, and borrower profile. Non-owner-occupied investment properties have typical down payments of between 15% and 25%, with many mortgage lenders preferring at least 20% to reduce their risk.
Going the “house hacking” way with owner-occupied properties can cut that upfront cash requirement down significantly — to 3.5% with FHA loans for up to a 4-unit property, or even all the way to 0% for qualifying VA loans.[1]
In this article, we’ll help you understand how down payments affect your financing, loan type variations to consider, and share some creative strategies to lower the down payment requirement (or avoid it altogether).
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Criteria for qualifying to buy a rental property
- Minimum down payment of 15%. For government loans or for multi-unit properties, lenders might require 3.5–25% down.
- Minimum credit score of 700. For lower credit scores, you’ll need either a higher down payment or a lower DTI. For the best interest rate, try to have a credit score above 740.
- Maximum DTI of 45%. For higher DTIs, you’ll likely need a higher down payment.
- Cash reserves of 6 months or more. Many lenders will require you to have 6 months worth of mortgage payments in savings.
Standard down payment benchmarks
The cash you’ll need up front differs depending on the property type and other factors. For conventional loans on non-owner-occupied investment properties, most lenders prefer at least 15% down for a single-family home and 25% for a multi-unit property.[1]
But these percentages aren’t set in stone. Of all the factors influencing the down payment requirements, your credit score and debt-to-income ratio will be weighed most heavily.
As a rule, the higher your credit score, the less you’ll pay to buy a rental property. For conventional loans, you should aim for a credit score of at least 680 for a 15% down payment.[2] Similarly, the lower your debt-to-income ratio (DTI), the less down payment you'll need. For conventional loans, you should have a DTI below 45% — though you’ll get the most favorable terms if it’s below 28%.
Aside from those, a few other considerations will determine your mortgage outcome. Having sufficient cash reserves and liquid assets — at least six months of the potential income the property is set to take in — is seen favorably by lenders.
Types of loans for investment properties
Not all rental property financing are equal. The type of loan affects how much you should put down, whether you’re required to live in the property, and how flexible the terms may be.
Here are some of the main options to consider.
Conventional loans
Conventional loans are the most common choice when you’re looking to finance an investment property. You can use this type of loan to finance either single- or multi-family unit properties, and it doesn’t have to be your primary residence — a big advantage for investors.
Conventional loans: Main things to know
- Eligibility: A minimum credit score of 680 to 700, a maximum 45% DTI ratio, and at least six months of mortgage payments in reserve is a healthy place to start. The better your financial standing and credit score, the better mortgage rates you’re likely to get.
- Down payment: At least 15% for a single-family home and 25% for multi-unit properties.
- Occupancy rules: Doesn’t require owner-occupancy.
✅ Pros
- Suitable for many investors
- No owner-occupancy requirement
❌ Cons
- Stricter eligibility standards
- Typical to be required to have six months of payments in cash reserves
FHA loans
The Federal Housing Administration (FHA) allows as little as 3.5% down when purchasing a multi-family property that can be used as a rental. But only if a homebuyer plans to make one of those units their primary residence. These attributes make FHA loans appealing to first-time investors who want to pursue a “live-in landlord” strategy.
FHA loans: Main things to know
- Eligibility: A minimum credit score of 500 is required to qualify for a loan; a maximum DTI ratio of 43%.
- Down payment: A minimum of 3.5% down payment if your credit score is 580 or higher; 10% down payment for those with a credit score between 500 and 580.
- Occupancy rules: Requires a buyer to occupy one of the units.
✅ Pros
- Down payment as low as 3.5%
- Lower eligibility requirements compared to conventional loans
❌ Cons
- Owner-occupancy requirement
- Available only for multi-unit residences if buying as an investment property
VA loans
Available for active military service members and veterans, VA loans offer a path to homeownership (and real estate investing) with 0% down.[3] This is one of the most cost-effective ways to combine homeownership with building rental income, if you are eligible.
VA loans: Main things to know
- Eligibility: No set minimum credit score requirement, although some lenders may require a credit score of 620+
- Down payment: No mandatory down payment.
- Occupancy rules: Requires a buyer to occupy one of the units.
✅ Pros
- Down payment as low as 0%
- Lower eligibility requirements compared to conventional loans
❌ Cons
- Owner-occupancy requirement
- Available only for multi-unit residences if buying as an investment property
Fannie Mae HomeReady loan
This loan is suitable for buyers who are willing to live in one unit and rent out the rest but don’t have a significant down payment saved for the purchase. It could be a great alternative to an FHA loan if you want to consider a few different options.
HomeReady loan: Main things to know
- Eligibility: Requires a credit score of 620 (could be as high as 680 for multi-family units), income that does not exceed 80% of the area’s median.[4]
- Down payment: As low as 3%.
- Occupancy rules: Requires a buyer to occupy one of the units.
✅ Pros
- Down payment as low as 3%
- Offers a path to homeownership (and investing) for lower-income buyers
❌ Cons
- Owner-occupancy requirement
- Available only for multi-unit residences if buying as an investment property
- Condition to complete the homebuyer education program
Freddie Mac Home Possible loan
The Home Possible loan mirrors the HomeReady loan with some general requirements. It also provides a cost-effective entry point into multi-unit investing for buyers who occupy one of the units themselves.
Home Possible loan: Main things to know
- Eligibility: Requires a credit score of at least 660 and income that is less than or equal to 80% of the area’s median
- Down payment: As low as 5% [5]
- Occupancy rules: Requires buyer to occupy one of the units
✅ Pros
- Down payment as low as 5% for 2- to 4-unit properties
- Offers a path to homeownership (and investing) for lower-income buyers
❌ Cons
- Owner-occupancy requirement
- Available only for multi-unit residences if buying as an investment property
- Condition to complete their homebuyer education program if you’re a first-time homebuyer
Borrower profile: What you need to qualify for an investment property loan
Lenders treat investment properties differently from primary residences and consider them riskier. So, your financial profile and several key factors have a significant influence on the down payment amount and the terms you can receive.
Credit score
To qualify for most investment property loans, you need to have a credit score of at least 620, but better financing options typically start if your credit is 680 or higher. For example, with a credit score of 680, the down payment requirement is generally only 15%.[2] With a score of 620, it increases to 25%.
Debt-to-income (DTI) ratio
Conventional investment property loans usually require borrowers to have less than 45% DTI.[1] For FHA or VA loans, DTI should ideally be even lower (41-43%). The low DTI indicates to lenders that you’re not overextending yourself financially, which can also help you secure better loan terms.
Cash reserves
If you’re buying an investment property, most lenders will require proof of cash reserves saved up, usually equal to six months of mortgage payments. This requirement helps assure the lender that the borrower can handle any unexpected expenses or lengthy tenant vacancies.
Pro tip: Even if the lender does not require proof of cash reserves, it’s a wise move to have that money ready anyway. We’ve spoken to many real estate investors, and many of them share the same sentiment — having six months' worth of cash for emergencies is a must, no matter if you’re a beginner or an experienced investor.
Alternative strategies to lower a down payment
For new investors, the prospect of making a large down payment can feel like the most significant setback. Luckily, there are alternative financing strategies to consider that can make your goal more achievable:
- House hacking: One of the most popular options to get your foot in the door of real estate investment. By purchasing a duplex or triplex and living in one of the units, you can qualify for owner-occupant programs like FHA (3.5% down payment) or Home Possible/HomeReady (3-5%) and generate rental income from other units.
- Home equity loan: A home equity loan allows you to tap into the equity on a property you already own, such as your primary residence or another investment, as one lump sum. These funds can be used to finance the purchase of the investment property.
- Home equity line of credit (HELOC): Similarly, a HELOC allows you to tap into your home equity. However, it functions more as a credit card with a revolving line of credit, so you can borrow money repeatedly. You’ll have a credit limit — usually about 80% of your equity.
- Seller financing: In the case of seller financing, a buyer and a seller strike a deal to bypass a traditional mortgage. The seller is essentially acting as a lender, with the buyer making direct payments to them. Here, a down payment can be as low as the seller agrees to — in some cases, none whatsoever.
- Hard money loans: These loans are designed specifically for real estate transactions and emphasize collateral over a borrower’s creditworthiness. Although they are fast and flexible, hard money loans come with higher fees and shorter repayment windows.
Market realities & investor tips
Real estate investors have different approaches to financing investment properties. The ones we talked to mentioned that almost all of the strategies we covered before were something they’ve done at least once. Here are some stories that might give you a better perspective and inspire you to act.
Seller financing with 0% down
“Seller financing is a special thing,” says Zach Shepard, president at Braddock Investment Group Inc. “We've bought many properties and had the seller keep their existing loan in place. A couple of times, they've been behind on payments, and we've brought the loan current.
“Once we decide to exit the property, the new buyer comes in and pays everything off: the previous owner's loan is paid off, and we get back the capital we've invested and the profit from the successful re-positioning and re-sale. Everybody wins!
“In those types of situations, the seller is usually in a difficult position financially,” he adds. “Part of our process is establishing that trust factor and showing them that we can help their credit by bringing the loan current.”
House hacking: rinse and repeat
“One of the best ways to get there is house hacking, and it's especially easy in the Midwest because multi-unit housing hasn't yet reached bubble territory in more affordable markets,” notes — Jacob Naig, owner at webuyhousesindesmoines.
“There are 2–4 unit properties in Des Moines that qualify for FHA loans, allowing one to get as little as 5% down or less on their entry into the investment space,” he adds. “You live in one, rent the others, and then repeat this process after you hit the 1-year occupancy period.
“All of the local investors that I personally know and who have gone this route were able to scale from 1–4 doors in less than two years.”
Hard money lender perspective
“Personally, I have funded deals as low as 10% down and sometimes less using private capital and cross-collateralizing and seller carry backs,” explains Jimmy Fuentes, consultant at California Hard Money Lender.
“I recently saw an investor use leverage from equity in another property by putting that equity up as collateral. This allowed them to finance the deal with less than 8% up front. While these strategies are not commonplace with traditional lending, they can be accomplished in private lending when an asset makes sense, and a borrower has a clear exit strategy.”
Your next steps as an investor
Getting started in real estate investing does not have to be overwhelming or a distant dream if you have a solid plan in place. Start by strengthening your borrower profile by improving your credit score and building cash reserves — both can help you unlock better loan terms. Also, explore some creative financing options, from house-hacking to low-down-payment programs, especially when you need assistance with affording a down payment.
Finally, choose your team wisely. Partnering with a knowledgeable real estate agent and lenders will ensure you’re strategically positioned to find properties that meet both your goals and financial eligibility.