Financing and Down Payments

[Trey Holloway]

Hi everyone. I am taking the plunge on my first STR. I've been checking markets and have honed in on a particular market. I have a realtor I'm working with who focuses on STRs. I'm now looking at the financing. My realtor provided me with three names of folks he has worked with which is helpful.

I spoke with the first one (who is a mortgage broker so not tied to one particular bank) and he said I would need to put 25% down on a vacation/2nd home, or at least 20%. I had been under the impression that there are products out there where you can put 10-15% down to get in. I would like to preserve some cash so I have money to fix up the property I'm looking to buy.

For some context, I am looking at a property that has been on the market for a couple of months now and is listed at $325K. I believe the upside value is $400K once fixed up. I have about $115K in cash to deploy. So I don't want to spend $90K on a down payment and closing costs and only have $25K to fix it up. I'd much prefer to put $60K on a down payment and closing costs so I have $50K to fix it up.

So a couple of questions: 1) Am I mistaken in thinking those kind of lower down payment products are out there for regular folks like us? Wife and I both have an 800 credit score and plenty of income with a 19% DTI ratio. 2) Do you recommend that as a first timer I actually do go with a higher down payment product as I learn? Try and get some equity and then figure out funding options for property #2 (which I definitely want to do).

[Zach Edelman]

Are you planning to occupy the property as a 2nd home or as a true vacation home? The lending options will differ based on this: For 2nd home, 10% down is available, but there are restrictions regarding how much/long you can occupy the property. For investment, 20% down is typical with some 15% down options out there but there are restrictions (not sure if this is available for STRs, just LTRs.)