Buying with only 5% down

[Dawn Curry]

So I've been running into obstacles with funding an investment property. I am looking at a rental property, but all the lenders I talk to are requiring 20% down, which would totally drain all my capital. How are BPers buying investment properties with only 5% down?

[Chris Mason]

Originally posted by @Dawn Curry:

So how do people do it? Sorry for such dumb questions, but I'm just so confused when I read about this. I just put in an offer for a rental and the bank accepted my offer. My agent just sent me the estimated cc and it's crazy! I understand that once I get this, I will have about 80-90k in equity, which gives me money to play (especially in my area). But how do people get such low down payments?

 They are telling their loan originators that they intend to owner occupy.

In some cases, they are even telling the truth!

The overwhelming bulk of mortgage fraud going on in 2016 is exactly this, btw. 

Here's how it looks from my POV:

Someone calls me a year or two after buying their home with 3.5% or 5% down. 

"Chris, I want to refinance to drop mortgage insurance!" 

"OK, Borrower, please send me xyz paperwork."

They send me all their paperwork. All bills, paystubs, bank statements, etc, still go to the apartment they were living in 2 years ago.

"Hey borrower, you purchased this place using owner occupied financing. You haven't moved in. It's been 2 years. You promised us that you would move in within 60 days. What's up?"

"Oh, I'm moving in next month. Ya know, funny thing, I just haven't gotten around to it."

"Ya, so, um.... that trick doesn't work on a refi, buddy boy. So let's chat about your investment property interest rate on this refinance, and how you're either taking that, or stuck paying mortgage insurance for the next zillion months."

(I don't actually report them, that would be a dick move, which is why I leave that "next 28 years" option on the table.... others would report them and FORCE refinance them.)