Summary: Are you looking to invest in real estate in WA, OR, ID, or CO some time soon? If so, you’ll need a little bit of capital to invest upfront in the form of a down payment. The question is, how much of a down payment do you need? This article will help you determine how much to come up with when investing in the real estate market.

Investing in real estate is a great way for you to diversify his your assets. It’s also a great way to build wealth over time. After all, real estate has a tendency to appreciate in value over time, despite the odd blip here and there. In turn, you can build equity along the way.

And if you rent out your investment properties in WA, OR, ID, or CO, you can get someone else to pay your mortgage for you while still making money every month and building equity. It’s a fantastic investment opportunity.

However, there is a common hurdle that almost all real estate investors face: this comes in the form of a down payment.

It can be a challenge to come up with enough cash to fund the down payment on a home or piece of land in cities like Seattle, Denver, Boise, or Portland, let alone multiple properties, especially when considering the high price of real estate these days. And in certain markets – such as Seattle – home prices are far higher than state-wide and national averages. At the same time, how big of a down payment does someone really need? There are a few factors that someone is going to need to consider, including the following.

The Conventional Mortgage

There are plenty of investors who like to stick with a conventional mortgage for their investment properties. This makes sense because this is a format they are familiar with. For a conventional mortgage, the down payment is going to fall between 15 and 25 percent.

When taking out a conventional mortgage for an investment property, the lender is typically going to want a larger down payment. For a single-family property, most lenders are going to expect at least 15 percent of the purchase price. This number can be as high as 25 percent of those who are investing in an apartment building or multifamily property with 2-4 units.

Those who are looking to put down a smaller down payment will need to finance the investment property as a second home. While this might be an interesting thought, anyone looking to purchase an investment property as a second home will need to spend at least some of their time at this location rather than renting the property. For a second home, someone might be able to get away with a 10 percent down payment.

Keep in mind, however, that if you are able to put down as much as 20% of the purchase price in the form of a down payment, you will be able to avoid paying private mortgage insurance (PMI). This type of insurance is designed to protect the lender, not you, even though you are the one paying the premiums. That said, the down payments for investment properties are almost always higher, as compared to the much lower down payment options available to buyers purchasing their primary residence or second home.

A Smaller Down Payment For Multifamily Buildings

There is another way that someone might be able to successfully apply for a smaller down payment. FHA mortgages tend to have higher fees; however, they require smaller down payments even for multifamily properties between may only require a 3.5 percent down payment with an FHA loan.

This does require that you occupy one of the units as your primary residence. If you do not occupy one of the units, this will trigger the property classification to switch from a primary residence to an investment property which is ineligible for FHA financing. FHA loans allow real estate investors to buy multi-unit properties with as little as 3.5%; as long as the buyer resides in one of the units of the property, all others can be rented out. This applies to properties with anywhere from 2 to 4 units.

In this example, you could purchase a multifamily building for $600,000 and only have to put $21,000 down (3.5% of the purchase price). If you’re willing to stomach higher fees, you might want to check out the possibility of an FHA loan.

If you are interested in purchasing an investment property, be sure to consult with your trusted home mortgage professional to discuss financing options for your specific situation.

Down Payment Needed For Investments in WA, OR, CO, and ID

In order to give you an idea of the type of down payment you may require to buy an investment property in Washington, Idaho, Oregon, and Colorado, refer to the following examples based on the current (as of February 2020) home prices in each state. We’ll show you examples of the down payments needed either for a conventional loan or FHA loan.

Washington State

• Average home price: $412,900
• 3.5% down payment (for FHA loans for 2- to 4-unit properties): $14,451
• 15% down payment (for a conventional loan): $61,935

Oregon

• Average home price: $364,300
• 3.5% down payment (for FHA loans for 2- to 4-unit properties): $12,750
• 15% down payment (for a conventional loan): $54,645

Colorado

• Average home price: $398,700
• 3.5% down payment (for FHA loans for 2- to 4-unit properties): $13,954
• 15% down payment (for a conventional loan): $59,805

Idaho

• Average home price: $288,000
• 3.5% down payment (for FHA loans for 2- to 4-unit properties): $10,080
• 15% down payment (for a conventional loan): $43,200

Ready to Buy a Home and Apply For a Mortgage?

Are you considering buying a home sometime soon? Sammamish Mortgage can help. We are a local mortgage company serving the broader Pacific Northwest region, including Washington state, Idaho, Colorado, and Oregon. We are proud to offer a wide variety of mortgage programs and products with flexible qualification criteria. Please contact us if you have any questions or are ready to start the mortgage application process.