If you want to become a property investor, you may have been scared off by the 20% down payment most home finance lenders require. On top of minimum credit scores and income requirements, coming up with a large amount of cash upfront can feel like an impossible hurdle.
For example, to buy a $250,000 home, you’d need $50,000 for the down payment alone. That’s a lot of cash that not everyone has lying around, and it can feel like a significant barrier to entry into real estate investing.
Fortunately, many loan options require less than 20% down. We’ve compiled the best real estate investment loan programs that require less than a 10% down payment, with some requiring as low as 3%.
5 investment property loan options
1. FHA loan
Pros
- Down payment of just 3.5%
- Only requires a credit score of 580 or higher
- Can be used on properties with up to four units
- Can be used for homes in need of repairs
Cons
- Must be used to purchase your main residence
- Interest rates are higher than conventional loans
- Not eligible for properties with five or more units
Best for: New investors with low credit scores but a solid investment strategy.
Federal Housing Administration (FHA) loans are an excellent option if you’re a new investor who doesn’t necessarily have the best credit history. FHA requirements include putting 3.5% down and needing a minimum credit score of only 580.
You can still qualify even with a credit score of 500-579, although your down payment requirement will increase to 10%.
There’s also an FHA 203(k) Improvement Loan option that considers the cost of repairs if you’re buying a fixer-upper. This opens up FHA loans to potential investment opportunities that are priced relatively low but which, with some renovations, have the potential to deliver a high return.
The primary limitation of FHA loans for investors is that they're restricted to financing your primary residence. However, renting additional bedrooms or units can still leverage them for house hacking.
Additionally, FHA loans typically carry higher interest rates compared to conventional loans.
As an investor, you can only use FHA loans on properties with up to four units, one of which will need to be occupied by you. Finally, you’ll need to prove to an FHA-approved lender that you have sufficient income to pay back the mortgage, so it’s not a good option with low income.
2. VA loan
Pros
- 0% down payment requirement and capped closing costs
- Lower interest rates and no insurance requirement
- Lenders generally accept lower credit scores
Cons
- Only available to service members, veterans, and surviving spouses
- Can only be used for your main residence
- Properties with more than five units aren’t eligible
Best for: Veterans and active service members looking to invest in property.
Veterans Affairs (VA) Loans are some of the best mortgage deals around: they require no down payment, have low interest rates, no mortgage insurance requirements, and their closing costs are capped.
While it’s up to individual lenders to set minimum credit score requirements, many will accept lower credit scores than conventional mortgages. VA lenders typically require a FICO score of at least 620.[1]
The biggest disadvantage to VA Loans is that they’re only available to active duty service members, veterans, and their surviving spouses. Investors should also be aware that VA Loans can only be used to purchase a primary residence. While you can use it to buy a one- to four-unit property, you must occupy one of those units.
Despite their name, VA Loans are applied for through private lenders and not directly through the Department of Veterans Affairs. You’ll also need to have served a minimum amount of time to be eligible, from 90 consecutive active days for service members during wartime to up to six years for the National Guard and Reserves.
3. Fannie Mae and Freddie Mac programs
Pros
- Only requires a 3% down payment (5% for multi-family)
- Very low-income borrowers can get a $2,500 credit
- Low insurance costs and flexible terms
Cons
- Requires you to earn less than 80% of the median income in your area
- Good credit required
- You must live in the property
- Multi-family properties may not be eligible
Best for: Low-income investors looking to turn their primary residence into an investment.
Fannie Mae’s HomeReady Mortgage program and Freddie Mac’s Home Possible Loan are similar programs that help low—to moderate-income borrowers become homeowners.
Both require a down payment of just 3%, making qualifying for a mortgage much easier. Very low-income borrowers can even get a $2,500 credit with the HomeReady Mortgage that can be applied to the down payment.
However, you’ll have to prove that your income is less than 80% of the median income in your area, while still maintaining a credit rating of at least 620, which is higher than what FHA Loans require.
Additionally, only one- to four-unit multifamily properties qualify, one of which must be owner-occupied.
Finally, your down payment requirement may increase if you’re purchasing a multi-family property, although it’s still very low at just 5% for the HomeReady Mortgage.
While these requirements mean that many investors won’t qualify, if you’re new to investing and haven’t yet built up a decent income stream, then Fannie Mae and Freddie Mac’s programs can help. As with any conventional mortgage, you apply for these programs through your normal loan provider.
» Learn more about Fannie Mae and Freddie Mac property loans
4. Home equity line of credit (HELOC)
Pros
- Loan amount is tied to your current equity
- No requirement to live in your investment property
- May have low, interest-only payments
Cons
- You may have to repay the entire loan when you sell
- Variable interest rates could lead to payment increase
- Good credit score required
Best for: Homeowners with lots of equity and good credit.
A home equity line of credit (HELOC) is a form of revolving credit, similar to a credit card, that you can draw from as needed. But unlike a credit card, the amount of a HELOC is based on the equity you have in your current home.
HELOCs can be used to fund the purchase of an investment property and, unlike mortgages, they don’t require a down payment. You can use HELOCs as you wish, including purchasing a property outright, making improvements, or paying other expenses.
Unlike the loan options discussed above, you don’t need to make the purchased property your primary residence.
HELOCs' monthly payments can also be low and may only be the interest (or, sometimes, interest and a portion of the principal). They're also variable-rate loans, so your payments could decrease if interest rates decline.
On the downside, many HELOCs must be paid in full after selling your home. This can result in a balloon payment that may be unaffordable, and failure to pay the HELOC could result in losing your house.
Finally, HELOCs have high eligibility criteria. You’ll typically need a credit score above 740 and a debt-to-income ratio of 40% to 50%.
5. Private lenders and hard money lenders
Pros
- Eligibility based on the value of the investment property
- Loan amount isn’t tied to a down payment
- More room to negotiate terms
Cons
- Investment property used as collateral
- Interest rates are much higher than conventional loans
- Much shorter repayment periods
Best for: Established investors looking for a fast way to expand their portfolio.
Hard money loans from private lenders (instead of institutional lenders like banks) are short-term loans to purchase investment properties.
Because these loans come from private lenders, the approval process is much faster and more convenient than getting a mortgage from a bank. Lenders are typically more open to negotiating than traditional lenders would be.
Unlike a conventional mortgage or HELOC, a hard money loan isn’t usually based on your credit score, income, down payments, or current equity. Instead, lenders mainly consider how much the investment property will be worth after renovations, or its “after repair value” (ARV). So, if you find a good investment opportunity, you can usually find a hard money lender willing to finance it.
The biggest drawback of hard money loans is that their interest rates are much higher than those of conventional loans. So, they’re best for investors with sufficient capital to cover the interest if the investment takes longer to generate a profit than originally planned.
Repayment periods are also shorter. You’ll typically need to repay within a year (usually when you flip the property) instead of stretching out payments over multiple decades as you would with a mortgage.
Other ways to reduce your down payment
Down payment assistance programs
These programs are designed to assist borrowers with a sufficient down payment to buy a house.
Most of these programs are provided through state housing finance agencies (HFA), although some counties, non-profits, and lenders have their own programs. You can contact your state HFA, local government, the U.S. Department of Housing and Urban Development (HUD), and local lenders to find out which programs are available in your area.
Assistance can take various forms. Some programs provide grants or forgivable loans to help meet the down payment requirements for a conventional mortgage. Others are deferred-payment loans, which must be repaid only when you move and often without interest.
Thousands of down payment assistance programs are available nationwide, so the benefits and eligibility requirements vary. Most programs are designed for first-time homebuyers or those with low or moderate incomes.
» View HUD's local home-buying programs
NACA Loans
The Neighborhood Assistance Corporation of America (NACA) is a non-profit that provides low-cost mortgages to help underserved populations achieve home ownership.
NACA Loans require no down payment, no closing costs, no mortgage insurance, and come with low interest rates, making them extremely affordable.
However, NACA Loans are exclusively for owner-occupied properties, and you’ll need to meet maximum income requirements. You can use NACA Loans to help purchase multi-unit properties, which can help you generate rental income, so long as you plan on using one of the units as your primary residence.
USDA loans
United States Department of Agriculture (USDA) loans are zero down payment loans for buyers in eligible rural and suburban areas.
USDA loans require no down payment, lower interest rates, and no mortgage insurance. Approved lenders usually issue these loans, although the USDA does provide some directly.
However, the loans are for low- and moderate-income borrowers, so you must meet maximum income requirements.
Lastly, USDA loans are only for primary residences. While that can include multi-family properties that generate income, rent is capped at 30% of 115% of the area's median income.
» See if you're eligible for USDA loan programs
Seller financing
Seller financing is when, instead of getting a mortgage from a traditional lender, you pay the seller directly for the house in regular installments over time. It's essentially 100% financing with a 0% down payment, which allows you to purchase an investment property without much upfront capital or having to apply for mortgage approval.
However, seller financing is very hard to come by since the seller must have the resources to accept not getting full payment for their property until potentially years into the future. This path can also be risky, as failing to keep up on payments for the property could result in it reverting to the original seller and you losing all of your equity.
