The honest answer: plan on 20-25%
Yes, conventional guidelines technically allow 15% down on a single-family investment property. But the pricing grid punishes that last 5% so hard — and the reserve and mortgage-insurance math stacks on top — that most investors who run the numbers land at 20% minimum and 25% by choice. Here's the full picture so you can make that call with real math instead of a headline.
Conventional minimums, and what they really cost
Agency (Fannie/Freddie) minimums for investment purchases:
- Single-family: 15% down — allowed, but you're financing above 80% LTV, which means mortgage insurance on top of the steepest band of the investment pricing grid. MI on investment properties is expensive and not every insurer offers it.
- 2-4 units: 25% down — a hard floor, no way around it on an investment purchase.
Investment occupancy carries some of the largest loan-level price adjustments (LLPAs) on the agency grid, and those adders grow with LTV. At 85% LTV you're in the worst cell of the worst row; at 75% you've climbed out of it. That's why "minimum down" and "sensible down" are different numbers on rentals in a way they aren't on a primary home.
DSCR minimums
DSCR loans — which qualify the property on rent ÷ payment instead of your personal income — typically require 20% down, with the best pricing at 25% or more. There's a compounding effect here that surprises people: more down means a smaller loan, which means a smaller payment, which means a higher coverage ratio — and DSCR lenders price better at higher ratios. So on a DSCR loan, extra down payment improves your rate twice: once through the LTV band and again through the DSCR tier.
Why 25% often beats 20% by more than it should
Pricing grids aren't linear — they cliff at tier boundaries, and 75% LTV is a big one. Worked example on a $300,000 single-family rental:
- 20% down: $60,000 down, $240,000 loan at 80% LTV.
- 25% down: $75,000 down, $225,000 loan at 75% LTV.
The extra $15,000 moves you down an entire pricing tier, where the investment adder typically drops by roughly a point or more of cost. A point on a $225,000 loan is $225,000 × 0.01 = $2,250 — taken either as upfront savings or, more commonly, as a permanently better rate for the life of the loan. Stack on the smaller payment (which helps your DTI or your DSCR ratio) and the avoided mortgage-insurance question, and that $15,000 is doing double or triple duty. Going further to 70% or 65% keeps buying improvement, but the steepest cliff is usually the one at 75%.
Gift funds: the rule that surprises everyone
On a primary residence or second home, a family gift can cover your down payment. On a conventional investment property purchase, gift funds are not allowed. The down payment must be your own funds — savings, documented sale proceeds, retirement withdrawals, or equity pulled from another property via a cash-out refinance. Money that has been sitting in your account long enough to age past the lender's statement window (generally 60+ days) is treated as your own. DSCR lenders vary: a few allow partial gifts, but most want the down payment and reserves to be demonstrably yours. If family wants to help you buy a rental, the clean structures are adding them as a co-borrower or receiving the money well before you shop — not a gift letter at closing.
Reserves: the down payment behind the down payment
Lenders also require post-closing reserves — months of the property's full payment (principal, interest, taxes, insurance, association dues) left in the bank after closing. Plan on 2-6 months for the subject property, with conventional loans adding a percentage-based requirement against every other financed property you own — so the bar rises as your portfolio grows. DSCR lenders typically want 3-6 months, more for cash-out transactions. Add closing costs of roughly 2-4% of the purchase price, and your real cash-to-close on a "20% down" deal is closer to 25% of the price. Budget for the whole number.
The house-hacking exception
There is one legitimate low-down-payment door into rental real estate: occupy the property. FHA allows 3.5% down on 2-4 unit buildings when you live in one unit for at least a year, and you can use rental income from the other units to help qualify (3-4 unit buildings must also pass FHA's self-sufficiency test). Fannie Mae now allows 5% down on owner-occupied 2-4 unit properties on the conventional side too. See FHA vs conventional for how those paths compare. One bright line: the occupancy has to be real. Claiming owner-occupancy to get the low down payment on what is actually a pure rental is mortgage fraud — see how lenders classify occupancy.
The paths, side by side
| Path | Minimum down | Realistic sweet spot | Notes |
|---|---|---|---|
| Conventional, 1-unit investment | 15% | 25% | Steep pricing plus MI above 80% LTV; big improvement at 75% |
| Conventional, 2-4 unit investment | 25% | 25% | Hard floor; full income docs and DTI |
| DSCR | 20% | 25%+ | Property qualifies on rent; more down also lifts the coverage ratio |
| FHA house-hack, 2-4 units | 3.5% | 3.5-5% | Must occupy one unit 12+ months; other units' rent can help qualify |
| Conventional owner-occupied, 2-4 units | 5% | 5-10% | Owner-occupancy required; conventional MI applies at high LTV |
The pattern is simple: occupancy buys leverage. Pure investment financing starts around 20% down in practice, and the market pays you — through pricing tiers, coverage ratios, and reserve breathing room — to bring 25%.
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