1st Property Financing Question

[Alan Diamond]

All,

I have found the first property Id like to purchase.  Relatively low dollar, but good shape, good track record of renting.  I was thinking of just a conventional mortgage for financing as I don't have a lot of cash for a downpayment.  I have a good income and credit rating, just not much cash right now.  I'd like to do 5 or 10% down.  Is this realistic?

Thanks,
Alan

[Jon Holdman]

The only way you're going to get 5-10% down for an investment is some sort of creative financing. If you go to get a conventional loan you should plan on 20% down. I've heard of 15% down, but that's going to require PMI and that will hurt your cash flow.

So, first possibility is seller financing.  Not a seller second, which a conventional lender isn't going to allow, but full seller financing.  Have you inquired about that?  Unlikely to be the 30 year fixed rate you would probably like, but might be a way to get it without 20% down.

Or a loan on some other asset.  Trouble there is conventional lenders want the down payment to be your cash and will ask  if part of the down payment is borrowed.  So, discuss this up front with your broker or lender and see if there's a way to do this.

A last resort might be hard money. For the right deal, with the right HML it is possible to get in with a lower down payment, then refinance after doing some work. But that requires a HML that doesn't have a large down payment requirement and a property that you can force some value into. And this is an expensive approach.