The down payment is the number everyone asks about, and it is only about two thirds of the answer. In the worked examples below, a buyer putting 20% down on a $250,000 rental needs $73,486 in cash, which is 29.4% of the price. The extra 9.4 points are closing costs, first repairs and reserves, and they are the lines that catch first-time buyers short.
If you are asking how much money do you need to buy a rental property, the useful rule of thumb is this: with 20% down, plan on cash equal to roughly 30% of the purchase price. The rest of this post shows where that comes from, how the loan type changes it, and how to rebuild the math with your own quotes. Every rate and cost percentage here is a labeled example. Loan program minimums are long-standing rules, and you should still confirm them with a lender before you plan around them.
The full cash-to-close stack, not just the down payment
Cash to close on a rental has five layers.
- Down payment. Set by the loan program and your choice within it.
- Closing costs and prepaids. Lender fees, appraisal, title insurance, recording fees, plus prepaid interest, the first year of insurance and the initial escrow deposit for taxes.
- Due diligence. The inspection and any add-ons such as a sewer scope. You pay for this even on deals you walk away from.
- Make-ready repairs. Whatever it takes to get the property rentable: paint, flooring, a water heater, safety items.
- Reserves. Cash that stays in the bank after closing. Lenders often require it, and the first vacancy or major repair will require it whether the lender does or not.
Layers 1 and 2 are due at the closing table. Layer 3 is due before it. Layers 4 and 5 are due in the weeks after. A buyer who has saved exactly the down payment plus closing costs is fully funded on closing day and broke the day after, with a vacant house that needs paint.
Down payment by loan type: conventional, FHA house hack, DSCR
The loan type moves the total more than any other decision. These are the long-standing program rules. Minimums and pricing change, so ask a lender for the current figure on each.
| Loan type | Who it is for | Down payment | What to confirm with the lender |
|---|---|---|---|
| Conventional investment, 1 unit | Non-occupant buyer | 15% minimum, 20% to 25% common | Mortgage insurance applies under 20%; rate is better at 25% |
| Conventional investment, 2 to 4 units | Non-occupant buyer | 25% | Reserve requirement in months |
| FHA, 1 to 4 units | Owner occupant, house hack | 3.5% | Mortgage insurance cost; extra tests on 3 and 4 units |
| VA, 1 to 4 units | Eligible veterans, owner occupant | As low as 0% | Funding fee and eligibility |
| DSCR loan | Investor qualifying on the property's rent | Commonly 20% to 25% | Minimum DSCR, commonly 1.20 to 1.25; prepayment penalty |
In dollars, at the three purchase prices used later in this post:
| Down payment | $150,000 price | $250,000 price | $400,000 price |
|---|---|---|---|
| 3.5% (FHA, owner occupied) | $5,250 | $8,750 | $14,000 |
| 15% | $22,500 | $37,500 | $60,000 |
| 20% | $30,000 | $50,000 | $80,000 |
| 25% | $37,500 | $62,500 | $100,000 |
A few notes on reading that table.
15% down is allowed and rarely the best choice. On a single-unit investment property, conventional loans go as low as 15% down. You pay mortgage insurance and usually a higher rate, and both come out of monthly cash flow. Get quotes at 15%, 20% and 25% and put all three payments into your analysis.
DSCR loans qualify on the property's rent. The lender divides the property's rent by its full monthly payment and wants that ratio above a floor. They suit self-employed buyers and people whose personal debt-to-income ratio is already full. Expect a higher rate than a conventional loan and read the prepayment penalty terms.
FHA and VA require you to live there. These are owner-occupant programs. You buy a duplex, triplex or fourplex, live in one unit and rent the others. That changes both the cash required and the return math, which is why a house hack calculator models your own housing cost alongside the rental income.
Closing costs, reserves, and the numbers buyers forget
Closing costs and prepaids. These vary by state, lender and loan size. The examples below use 3% of the purchase price as a planning figure. Your Loan Estimate will give you the real number within days of applying, and it is the only figure that counts. Note that fixed fees such as the appraisal make the percentage higher on cheap houses, so a $150,000 purchase may run above 3%.
Reserves. Conventional investment property loans commonly require about six months of the full payment (principal, interest, taxes and insurance) to be sitting in your accounts after closing. Own several financed properties and the requirement grows. Even where a lender asks for less, six months is a sensible floor for a first rental, because you have one tenant and therefore an occupancy rate of either 100% or 0%.
The lines buyers forget:
- Inspection money on dead deals. If you walk away from one property after inspection, you pay for two inspections to buy one house.
- Make-ready. Even a clean house needs something. The examples use $3,000 to $8,000 depending on price.
- Vacancy during make-ready and leasing. You make the first mortgage payment before you collect the first rent check. Reserves cover it, which is another reason they cannot be zero.
- Insurance paid up front. The first annual premium is usually collected at closing. It sits inside the 3% figure here, and a high-premium area can push you past it.
- Utilities and lawn care while vacant. Small, real and yours until a lease starts.
Worked totals: a $150,000, $250,000, and $400,000 purchase
These three examples share one set of assumptions so you can compare them:
- Conventional loan, 20% down, 30-year term, example rate of 7%
- Closing costs and prepaids at an example 3% of price
- Inspection and due diligence at a flat $750
- Property taxes plus insurance at an example 1.8% of price per year
- Reserves equal to six months of the full payment
The principal and interest payment at 7% over 30 years is about $665 a month for each $100,000 borrowed. Payments below are rounded to whole dollars.
Example 1: $150,000 purchase
- Loan: $120,000. Principal and interest: $798 a month
- Taxes and insurance: $150,000 x 1.8% = $2,700 a year, or $225 a month
- Full payment: $798 + $225 = $1,023
- Reserves: 6 x $1,023 = $6,138
| Line | Amount |
|---|---|
| Down payment (20%) | $30,000 |
| Closing costs and prepaids (3%) | $4,500 |
| Inspection and due diligence | $750 |
| Make-ready repairs | $3,000 |
| Reserves | $6,138 |
| Total | $44,388 |
That is 29.6% of the price.
Example 2: $250,000 purchase
- Loan: $200,000. Principal and interest: $1,331 a month
- Taxes and insurance: $250,000 x 1.8% = $4,500 a year, or $375 a month
- Full payment: $1,331 + $375 = $1,706
- Reserves: 6 x $1,706 = $10,236
| Line | Amount |
|---|---|
| Down payment (20%) | $50,000 |
| Closing costs and prepaids (3%) | $7,500 |
| Inspection and due diligence | $750 |
| Make-ready repairs | $5,000 |
| Reserves | $10,236 |
| Total | $73,486 |
That is 29.4% of the price.
Example 3: $400,000 purchase
- Loan: $320,000. Principal and interest: $2,129 a month
- Taxes and insurance: $400,000 x 1.8% = $7,200 a year, or $600 a month
- Full payment: $2,129 + $600 = $2,729
- Reserves: 6 x $2,729 = $16,374
| Line | Amount |
|---|---|
| Down payment (20%) | $80,000 |
| Closing costs and prepaids (3%) | $12,000 |
| Inspection and due diligence | $750 |
| Make-ready repairs | $8,000 |
| Reserves | $16,374 |
| Total | $117,124 |
That is 29.3% of the price.
How to make these your numbers
Swap in four things: the rate from your own Loan Estimate, the closing cost total from the same document, the actual tax rate for the county, and a real insurance quote. Switching to 25% down adds 5% of the price to the first line and shrinks the reserves line slightly because the payment falls. On the $250,000 example, the down payment rises by $12,500 to $62,500.
If the total at your target price is out of reach, the price is the variable to change first. A buyer with $45,000 is fully funded at $150,000 and badly underfunded at $250,000. For readers whose budget sets their market, the ranking of markets where rentals sell for under $200,000 is the place to start looking.
Ways to lower the entry cost that actually work
House hack with an owner-occupant loan. This is the largest reduction available. Take the $250,000 example as a duplex bought with FHA financing at 3.5% down. The base loan is $241,250. FHA adds an upfront mortgage insurance premium of 1.75%, normally financed into the loan, which brings the balance to $245,472. At the example 7% rate, principal and interest is $1,633. Add $375 for taxes and insurance and an example $113 a month for mortgage insurance, and the full payment is $2,121.
| Line | Amount |
|---|---|
| Down payment (3.5%) | $8,750 |
| Closing costs and prepaids (3%) | $7,500 |
| Inspection and due diligence | $750 |
| Make-ready repairs | $5,000 |
| Reserves, 3 months x $2,121 | $6,363 |
| Total | $28,363 |
That is $45,123 less than the $73,486 conventional total on the same price. The trade is a bigger loan, a bigger payment, mortgage insurance and a requirement to live in the property. Ask the lender for the current monthly mortgage insurance rate, since the $113 is a placeholder.
Buy a cheaper property. The stack scales with price almost linearly. Dropping from $250,000 to $150,000 cuts the cash needed by $29,098. A smaller first deal in a lower-priced market is a legitimate strategy, as long as the rent supports the numbers.
Negotiate a seller credit toward closing costs. Sellers can pay part of your closing costs. On conventional investment property loans the credit is commonly capped at 2% of the price, so confirm the cap with your lender. On the $250,000 example, a 2% credit is $5,000 off the cash required.
Buy rent-ready. A house with a tenant-ready interior can take the make-ready line from $5,000 to near zero. You usually pay for that condition in the price, and 20% of a higher price is cheaper in cash than 100% of a repair bill.
Bring a partner. One partner with cash and one with time and credit is a common structure. Put the split, the decision rights and the exit terms in a written agreement before making an offer.
Ways that sound clever and end badly
Skipping reserves to reach the down payment. This is the most common one. The purchase closes, the water heater fails in month two, and the repair goes on a card at a rate no rental return can beat.
Borrowing the down payment without telling the lender. A personal loan, a card advance or an undisclosed loan from a relative all add debt the lender has not counted. Lenders check account histories and ask where large deposits came from. Hiding the source is mortgage fraud. Also note that gift funds, which work fine on an owner-occupied purchase, are generally not allowed for the down payment on a conventional investment property loan.
Claiming you will live there when you will not. Buying with a 3.5% down owner-occupant loan and never moving in is occupancy fraud. The low down payment is a trade for living in the property. If you are not going to live there, use an investor loan.
Stacking debt on debt. A home equity line on your own house is a legitimate source of a down payment, and it is still a second loan secured by the place you sleep. If you use one, put its payment into the rental's cash flow analysis. A deal that works only when the borrowed down payment is treated as free does not work.
No-money-down courses. Seller financing and similar structures do exist. They are rare and negotiated one at a time, and they are not a plan a beginner can count on finding within a year.
Waiving the inspection to win. It saves $750 and exposes you to a five-figure repair. On a first rental, you want to know about the sewer line before you own it.
Next steps
- Total your liquid savings and decide what monthly amount you can add.
- Ask a lender for quotes at 15%, 20% and 25% down, plus the reserve requirement for your situation.
- Rebuild the stack table above at your target price with those quotes.
- If the total is out of reach, test a lower price or an owner-occupied duplex before you test a riskier source of cash.
You do not need to rebuild the table by hand each time. Change the purchase price in the single family rental calculator and it recomputes the whole cash-to-close stack at once, reserves included, so you can see in a few seconds which price your savings can support.
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