Minimum DP Needed?

[Ray Hunsberger]

New member here.... I'm researching the possibility of purchasing my first investment property and reached out to my friend, who does mortgages, and worked with me on primary residence. I asked him what the minimum needed to put down in Pennsylvania was and he replied with "20%". I hear of people purchasing with much less of a down payment on here so I'm looking for clarification. I asked him if this was his company's policy or an industry rule and he replied with "more of an industry rule".

Is this accurate?

[Michael Smith]

Actually, for your first 4 financed properties FNMA only requires 15% down on a Conventional loan for purchasing an investment property. Then, properties 6-10 will require 25% down.

When lenders require a larger down payment for a Conventional loan this is called an "overlay," meaning that they do not underwrite directly to DU or LP Pure guidelines (which is all that's required for a loan to be sellable to Fannie or Freddie). Banks typically do this because they want to reduce their credit risk while the loans are on their books in between the time of closing and when the loan is sold to Fannie or Freddie on the secondary market.

Lenders like us who have little to no overlays in place are able to do so because we sell our loans to the end investor very quickly after closing and thus reduce our exposure.