How Much Should You Put Down for a Rental Property?

To buy a rental property, you’ll typically need a down payment of 3.5% to 25%, depending on the type of loan you get and the type of property you’re purchasing.
Written by Katherine Duffy
Reviewed by Melanie Reiff
How much money you’ll need for a down payment on a rental property depends on what kind of loan you plan to take out for the property. Conventional rental property loans usually require a 15% down payment, while government-backed loans may only require a 3.5% down payment. 
It’s no secret that investing in a rental property can be a great way to make passive income. With higher demands for quality rental properties and the soaring value of real estate across the country, investing in a rental property seems like a sound financial investment. 
Navigating this investment can be tricky for first-time rental property owners, but
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is here to help. Read on to learn how much you’ll need for a down payment on a rental property, the loans available to you, how to know what kind of rental property you can afford, and whether a rental property investment is right for you. 
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What’s the down payment required for a rental property?

You’re typically required to pay more upfront for a rental property than your primary residence. A down payment of 15% is standard for most rental property investments, but you may be able to pay less with a government-funded loan. 

What you’ll need for a conventional loan

A single-unit rental property requires you to put down 15% of the total unit price, while a rental property with two to four units typically requires at least a 25% down payment. 
To qualify for a conventional loan, you’ll need a credit score of 700 unless your debt to income (DTI) ratio is less than 36%. In this case, you may qualify for a conventional rental property loan with a credit score as low as 680

What you’ll need for a government-funded loan

If you’d still like to invest in a rental property without putting down at least 15%, qualifying for a Federal Housing Association (FHA) loan will only require you to pay a 3.5% down payment. 
To qualify for this kind of government-backed loan, you’ll need to invest in a property that has a maximum of four rental units, but you must use one of these units as your primary residence. The property you invest in must also be FHA approved

The vacation to rental home caveat 

If you’re interested in purchasing a rental home that doubles as a vacation home, you may be able to pay a 10% down payment for the property instead of the standard 15%. To qualify for the lower down payment that comes with a vacation home purchase, you’ll need to make sure you stay at this property for at least 10% of the time it’s available to renters or 14 days—whichever is longer. 

Decide on what kind of rental property you can afford

Consider getting pre-approved for an investment property mortgage before buying a rental property so you know exactly how much home you can buy. Your lender generally considers 75% of your expected rental income when applying for this kind of home loan. 
While including this income is good for your application, you’ll need to consider regular costs associated with maintaining your new rental property. These costs affect your overall rental property budget. These could include:
  • Property taxes 
  • Vacancies
  • Routine maintenance
  • Monthly utility bills
  • Property management fees 

What you’ll need to get approved for an investment property loan

While you can purchase an investment property with FHA or vacation home loans, the most popular way is with a conventional home loan. Here’s what you’ll need to get approved for this kind of loan: 
  • At least a 15% down payment:This is the minimum down payment needed for an investment property, but a larger down payment will strengthen your loan application. 
  • A credit score of 700: Unless your debt to income ratio is under 36%, you should have at least a 700 credit score, although you’ll have better chances if your score is a 740 or above. If you can make a down payment of 25% or more, you may be able to apply with a lower credit score. 
  • Six months of cash reserve:You should have at least six months of cash reserved when applying for an investment property loan. Having cash stowed for potential vacancies assures your lender you’ll be able to pay the mortgage even if you don’t have current tenants. 
  • A debt to income ratio of less than 45%: Your debt to income ratio should not exceed 45% when applying for a conventional investment property loan. This means that if 45% of your gross monthly income is used to pay your monthly mortgage fees, you’ll need a higher income or lower rental property costs. 
MORE: How to make a counteroffer after a home inspection

Decide if investing in a rental property is right for you

Understanding what you’ll need for a rental property down payment is an important part of investing in this kind of property, but it’s crucial to decide whether this investment is right for you before making any decisions. 

Are you handy?

If a tenant’s sink becomes clogged or the fridge stops working, can you fix these problems? Are you up for repainting walls and repairing flooring between tenants? If the answer is no, it doesn't mean that you can’t invest in a rental property, but you’ll need to consider the cost of paying someone else to do these types of jobs for you. 

Do you like working with people?

You’ll be dealing with potential and current tenants regularly if you plan to keep your investment property. If your regular job doesn’t involve helping or managing others, this might be a bigger responsibility than you’re prepared for. 

Are you financially able to hire help?

You can invest in a rental property without having either of the above skills, but this means you’ll need to hire a property manager and handyman to take care of routine tasks associated with maintaining your property. 

How to find the right landlord insurance

While shopping for your new investment property, don’t forget to find landlord
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In most cases, a rental property down payment is tax deductible. The IRS has complicated restrictions surrounding this deduction, so it’s best to consult with an accountant before claiming this deduction.
You can! One of the most popular ways to do this is by taking out a Home Equity Line of Credit (HELOC) against your primary residence. If you have home equity, you might be able to borrow the amount you need for a down payment.
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