How to Secure Investment Property Loans with Just 10% Down in 2023

Investing in real estate can be an excellent way to build long-term wealth. However, coming up with a large down payment for an investment property loan can be a major hurdle for many potential investors. Traditionally, lenders have required down payments of 20-25% to qualify for an investment property mortgage. But securing financing with just 10% down is possible with the right loan program and preparation.

In this comprehensive guide we’ll explain everything you need to know about getting approved for investment property loans with only 10% down including

• Overview of 10% down investment property loans
• Pros and cons of low down payment loans
• Types of loans available
• Tips for qualifying with 10% down
• Alternatives if you don’t qualify

What Are 10% Down Investment Property Loans?

Investment property loans with 10% down work similarly to conventional mortgages, except they only require a 10% down payment instead of the typical 20-25%. Borrowers receive financing to purchase a property and use the property itself as collateral for the loan

You’ll make regular monthly payments on the remaining loan balance plus interest. Once the loan term ends (often 30 years) you’ll have paid off the mortgage and own the property free and clear.

The Pros and Cons of 10% Down Loans

Lower down payment loans offer several advantages:

Pros

• Require less cash upfront
• Easier to qualify than conventional loans
• Fast access to financing for real estate investments

However, there are some potential drawbacks as well:

Cons

• Higher interest rates and monthly payments
• Must pay mortgage insurance (MI) until 20% equity reached
• More stringent approval criteria than 20% down loans

Overall, 10% down investment property loans provide an affordable entry point for new real estate investors who want to build a portfolio but lack the funds for a larger down payment. But it’s important to factor in the higher long-term costs too.

Types of 10% Down Investment Property Loans

Many loan programs allow real estate investors to buy rental properties with just 10% down. Here are some of the most common options:

1. FHA Loans

FHA loans insured by the Federal Housing Administration only require a 3.5% down payment. You can put down 10% if your credit score is below 580 to avoid MI.

Pros

• Low down payments even with poor credit
• Permits rental properties up to 4 units

Cons

• Must be owner-occupied
• Higher interest rates and MI

2. HomeReady and Home Possible Loans

These conventional mortgages from Fannie Mae and Freddie Mac require just 3-5% down for qualifying borrowers.

Pros

• Only 3-5% down required
• Flexible credit and income criteria

Cons

• Must be owner-occupied
• Income limits in some areas

3. Portfolio Loans

Portfolio loans offered by banks, credit unions, and private lenders may offer 10% down programs.

Pros

• Can be easier to qualify than conforming loans

Cons

• Typically higher rates and fees
• Lower loan limits

4. Hard Money Loans

Hard money loans are asset-based loans from private lenders that can require little or no down payment.

Pros

• Little or no down payment needed
• Funds fast for good deals

Cons

• Very high interest rates
• Strict repayment terms

Tips for Qualifying for 10% Down Investment Property Loans

While lower down payment loans open doors for more real estate investors, approval criteria can be more stringent than a conventional 20-25% down loan. Here are some tips for qualifying:

• Aim for a credit score of at least 620 – The minimum can be lower for certain loans but your rates will be much better with higher credit.

• Reduce debt and improve your DTI – Maximize your borrowing power by paying down debts and credit cards.

• Have 2-6 months of mortgage payments in reserves – Lenders want to see you have enough savings to cover payments if you lose income.

• Pick a property that cash flows – Seek out properties in lower price ranges that can generate enough rent to cover the mortgage.

• Consider owner-occupying – Living in a multi-family rental can make it easier to qualify as an owner-occupant.

• Shop multiple lenders – Compare loan offers to find the best rates and fees for your situation. Regional and local banks may offer the most flexibility.

Alternatives If You Don’t Qualify for 10% Down

If you need more time to improve your finances or search for a property, here are some options to consider if you don’t qualify now:

• Save up for a larger down payment – Shooting for 20% down can help you qualify for better loan terms.

• Explore seller financing – Some sellers may be willing to finance a sale instead of requiring a traditional mortgage.

• Find a co-investor – Team up with a partner who can help out with the down payment funds.

• Consider lease-to-own properties – Make lease payments first, then purchase the property once you’ve improved your situation.

• Wait and improve your credit – Take time to pay down debts and disputing any errors to increase your score.

The Bottom Line

Investment property loans with just 10% down open real estate investing to those without piles of cash on hand. While qualifying is tougher than 20% down financing, it’s still feasible for dedicated investors willing to improve their financial profile. Following the tips above and shopping multiple lenders can help you secure financing for your first or next rental property.