Down payment requirements for investment properties are significantly higher than for primary residences. Where a primary residence can be purchased with 3–5% down, investment properties typically require 15–30% depending on loan type, property type, and lender. Understanding these requirements before you make an offer is essential — and knowing the strategies to minimize capital commitment while maintaining deal quality is what separates experienced investors from beginners.
Down Payment by Loan Type
Down payment requirements vary significantly by loan program:
Conventional Investment Property
1-unit: 15% minimum (with PMI) or 20-25% (no PMI). 2-4 unit: 25% minimum. Subject to 10-property portfolio limit and full income documentation requirements.
DSCR Loans
20-25% standard for purchase. 25-30% for cash-out refinance. No income documentation. LLC-friendly. No portfolio limit. Best option for most investors beyond their first 1-2 properties.
Bridge / Hard Money
Typically 10-20% of purchase price. Plus the lender may finance 100% of rehab costs. Higher rates (9-12%+). Short term (6-18 months). Used for value-add acquisitions, not long-term holds.
SBA 504 (Owner-Occupied Commercial)
10% minimum for owner-occupied commercial real estate. Lowest down payment option for business owners buying their own building. Requires owner-occupancy.
How Down Payment Affects DSCR
For DSCR loans, down payment directly affects your DSCR ratio because it changes the loan amount and therefore the monthly payment. More down = lower payment = better DSCR = better rate:
- 20% down on $300K = $240K loan → higher PITIA → tighter DSCR → higher rate
- 25% down on $300K = $225K loan → lower PITIA → better DSCR → lower rate
- 30% down on $300K = $210K loan → lowest PITIA → strongest DSCR → best rate
If your deal is borderline on DSCR (1.0-1.05), putting an additional 5% down often solves the qualification problem and may improve rate enough to justify the additional capital.
Strategies to Minimize Down Payment
Experienced investors use several strategies to reduce out-of-pocket down payment requirements:
- BRRRR method — Buy a discounted property with bridge financing, rehab to force appreciation, then do a DSCR cash-out refinance. If the ARV is high enough, the cash-out can return most or all of your original investment, effectively recycling your capital.
- Seller financing — Negotiate a seller-carried second mortgage for part of the down payment. Not all DSCR lenders allow this, but some permit seller carry for a portion of the required down payment.
- Cross-collateralization — Use equity in an existing property as collateral alongside the new purchase, reducing or eliminating the cash down payment. Available through portfolio lenders and some DSCR programs.
- Partnership capital — Bring in an equity partner who contributes the down payment in exchange for ownership. The DSCR loan is still based on property income, not the partners' personal income.
- Cash-out from existing portfolio — Use a DSCR cash-out refinance on an appreciated property to generate the down payment for the next acquisition. The most common scaling strategy for experienced investors.
The Real Cost of a Lower Down Payment
Minimizing down payment is not always optimal. Here is the honest math:
- Lower down payment = higher loan = higher payment = lower DSCR = higher rate
- 20% down vs 25% down on $300K: saves $15,000 upfront, but may cost $50-100 more per month in payment and higher rate over the loan term
- If the DSCR falls below 1.0 at 20% down but qualifies at 25% down, the additional 5% is not optional
- Best practice: run the deal at multiple down payment levels, compare actual DSCR, rate, monthly cash flow, and cash-on-cash return at each level
The goal is not the lowest down payment — it is the optimal capital deployment that maximizes risk-adjusted returns across your portfolio.
Frequently Asked Questions
For DSCR loans (the most common investor financing): 20-25% for purchase, 25-30% for cash-out refinance. Conventional loans require 15-25% depending on unit count. Bridge/hard money typically requires 10-20%. SBA 504 for owner-occupied commercial real estate requires 10% minimum.
With conventional loans: possible for 1-unit with PMI (private mortgage insurance). With DSCR loans: typically 20% minimum, though some programs allow 15% with higher rates and stricter DSCR requirements. Bridge/hard money loans for value-add deals often allow 10-20% depending on the property and lender.
Yes — more down payment means a smaller loan, lower payment, and better DSCR ratio. If a deal is borderline at 20% down (DSCR of 0.97), adding 5-7% more down can often push it above 1.0 and into qualifying territory.
Generally no — investment property down payments typically must come from the borrower's own funds (seasoned in accounts for 60+ days) or business entity accounts. Gift funds are generally not permitted for investment property down payments. Seller financing for a portion may be acceptable with some DSCR lenders.
The most common method is a DSCR cash-out refinance on an existing appreciated property. Other methods include partnership capital, BRRRR recycling, seller carry-back financing, and cross-collateralization with existing equity.
The minimum available through DSCR programs is typically 20% for purchase transactions. Some bridge programs allow less. Submit your deal and Chad Evers will identify the program with the lowest down payment that fits your specific property and profile.