If you want to buy your first home or invest in real estate, you’ve probably asked yourself, “How much do I need for a downpayment?” The amount will vary depending on your financial situation and specific goals. 

For example, a first-time homebuyer with good credit typically needs much less than an investor with multiple properties. This blog will cover tips and tricks to help you pay less for a downpayment and get into a property faster. In addition, you will learn creative strategies for raising the money you need to purchase real estate.

How Much Do I Need for a Downpayment?

Owner-Occupancy

Who is in this category?

• First-time homebuyers
• Anyone purchasing a home with the intention of living there for at least a year 
• Including investors who plan to purchase a new property as their primary residence and rent out their current home

What type of loan can I qualify for?

• Conventional financing (not backed by a government agency and meets the requirements of Freddie Mac or Fannie Mae)
• Government loans (VA, FHA, or USDA)

Required Downpayment:

• First-time homebuyers can put as little as 3% down
• If you’re not a first-time home buyer or making no more than 80% of the median income in your area, the downpayment requirement is 5%
• To avoid private mortgage insurance, the downpayment requirement is 20%

Investor Financing 

Who is in this category?

• Investors who purchase a property(s) with the intention of renting them or fixing and flipping.

What type of loan can I qualify for?

• Conventional loan 
• Typically for up to 10 properties 
• Hard Money Loan
• Private Loans

Required Downpayment:

• A single-unit with a conventional mortgage: 15 percent 
• A multi-family unit with a conventional mortgage: 25 percent 
• If you have more than 4 properties and 4 mortgages, up to 25 percent

One of the best things you can do as a real estate investor is build relationships with local community banks and private lenders. They will be able to work lower interest rates and downpayments into the terms, especially if you’re buying properties for less than they’re worth. 

For example, let’s say that a lender is willing to loan you 80% Loan-to-Value. So, you negotiate with a seller and purchase a property that appraises at $200,000 for $160,000. 

Since the property value is $200,000, some lenders may be willing to loan you 80% of the value ($160,000), allowing you to purchase the property free and clear! Think of it this way–it’s technically the same as if you’d put down a 20% downpayment.

How to Raise a Downpayment

After asking “how much do I need for a downpayment?”, your next challenge is to raise the money. There are several ways to raise the money for a downpayment, including:

• Home Equity
• Home equity is one of the most stagnant assets in America. Home equity is the value of your home minus the amount owed on mortgages or liens. You can use this equity for a downpayment by doing a cash-out refinance.
• Retirement Accounts
• You can use your IRA or a simplified employee pension plan (SEP) to purchase a second home or buy an investment property.
• Liquid Assets
• You can borrow against the cash, stocks, bonds, insurance policies, etc. and put them towards a downpayment.
• Lines of Credit from Local Banks 
• Typically, a bank will not loan you more than 80% of the value of the house, including rehab. Some banks don’t require you to put any of your own money into the deal 
• Partners
• In this scenario, a partner will provide the downpayment, and you will put the mortgage in your name. You bring the deal, do the rehab, set up management, and handle any other details. Then, whenever your property is sold, you and the partner split the profits 50/50.

• The Old Fashioned Way
• It may take some time, but saving is another great way to raise money for a downpayment. Make note of the extra room in your budget, find more room where you can, and save until you have the amount you need to secure your dream home or investment property!

We hope this blog helped you answer the question, “How much do I need for a downpayment?” Now, you’re ready to begin the process of purchasing property with confidence. 

If it’s your first time buying a home and you’d like more guidance, we created The WealthBuilders First-Time Homebuying Guide just for you. This free 25-page resource has everything you need to know about how to purchase your first home with wisdom. You can download by filling out the form below: