How much down payment do you need to buy a rental property?

Regardless of whether you're a seasoned investor looking to expand your portfolio or a newbie looking to buy your first rental property, there's one important aspect of the purchase math that will affect your financial forecast: the down payment. Not only will investors have to weigh it against mortgage payments and cash flow, but lenders will likely ask for much more up front if you plan on purchasing a home to immediately rent it, compared to living in it yourself.

If you’re buying a property to rent out from day one, most lenders want 20%–25% down on a conventional loan, with 25% often unlocking a better rate and easier approval. If you’re a first-time buyer planning to live in the home first and rent it out later, you could qualify for as little as 3%–5% down on a primary-residence mortgage (or 3.5% with FHA)—but you’ll need to live in the home for at least 12 months to meet typical occupancy rules before converting to a rental. The right number for you depends on cash flow, risk tolerance, loan type, and market.

Before we unpack the details, a quick reminder: your monthly costs as a landlord also include insurance, taxes, maintenance, and vacancies. If you’re modeling cash flow, don’t stop at the mortgage – be sure to factor in landlord insurance costs and what it covers. You may also want additional protection, such as equipment breakdown or service line coverage.

What is a down payment?

A down payment is the cash you bring to closing — the portion of the purchase price you pay upfront. Your loan covers the rest. For example, a 20% down payment on a $300,000 house is $60,000; the mortgage funds the remaining $240,000.

Why it matters:

• Rate and fees: More money down can lower your interest rate and reduce loan-level price adjustments on conventional investment loans.
• Monthly payment and cash flow: A lower loan amount means a lower principal-and-interest payment, which can be the difference between negative and positive cash flow.
• Private mortgage insurance (PMI): PMI is typical when a primary-residence conventional loan has less than 20% down. Investment property loans generally don’t offer PMI, so the minimum down payment is higher.
• Approval odds: For rental properties, lenders often want stronger reserves (months of payments saved) and tighter debt-to-income or DSCR (debt service coverage ratio).
  

Average down payment on a house

Nationwide, first-time buyers often put single-digit percentages down (commonly in the 6%–8% range), while repeat buyers tend to bring more. But those averages blur an important distinction: average homebuyers ≠ investors. For investment properties, many lenders expect 20%–25% down, with some programs allowing 15% down at higher rates and stricter overlays.

If you’re starting with a single family home you plan to occupy and later rent, you’re closer to the “typical homebuyer” averages at first — but your exit plan (house-hack now, landlord later) should guide how much cash you put down and how you structure the loan.

Loan type and occupancy rules at a glance

• Conventional (primary residence): Minimum 3%–5% down for qualified first-time buyers. PMI applies under 20% down. You must intend to live in the home, typically for 12 months, before converting it to a rental.
• Conventional (investment property from day one): Typical minimum 20%–25% down. No PMI. Expect rate add-ons vs. primary residence loans, and some lenders want 6–12 months of reserves.
• FHA (primary residence): 3.5% down minimum with mortgage insurance. Must owner-occupy first; after the occupancy period you can move out and rent the home (check your lender’s terms).
• VA/USDA (primary residence): Potential 0% down options if eligible. Both require owner-occupancy at origination; later conversion to rental is usually allowed after you meet occupancy rules.
• DSCR/non-QM loans (investment): Underwriting focuses on property cash flow (rent ÷ payment). Down payments commonly 20%–25%+, rates higher than conforming loans, but documentation is simpler if your personal income is complex.
  

Bottom line: If you’re buying a rental from day one, plan on 20%–25% down. If you’ll live in it first, you can go lower, but budget for PMI and confirm your future conversion plan with the lender.

How down payment changes your payment and cash flow

Let’s run simple numbers on a $300,000 property you plan to rent for $2,400/month after move-out. We’ll assume 30-year fixed rates and typical investor adjustments:

Scenario 1 – Live first, rent later (5% down):

• Down payment: $15,000
• Monthly principal & interest: about $1,877
• PMI: about $200/month until you reach 20% equity
• Other costs (insurance, taxes, maintenance, vacancy): about $862/month
• Estimated monthly cash flow: roughly –$539/month (negative until PMI drops or rents rise)

Scenario 2 – Investor purchase (20% down):

• Down payment: $60,000
• Monthly principal & interest: about $1,637
• Other costs: about $862/month
• Estimated monthly cash flow: roughly –$99/month (close to break-even)

Scenario 3 – Investor purchase (25% down):

• Down payment: $75,000
• Monthly principal & interest: about $1,497
• Other costs: about $862/month
• Estimated monthly cash flow: roughly +$41/month (positive cash flow from day one)
  

What this shows: on the same property at the same rent, 25% down nudges you into positive cash flow, while 20% down is close to break-even, and 5% down (with PMI) is negative until PMI falls off or rents rise. Your market, taxes, and insurance rates could swing these results by hundreds per month, so always re-run the math with local inputs.

Tip: Even if you start with a low-down-payment primary-residence loan, you can plan an accelerated principal paydown or a later refinance to drop PMI sooner and improve cash flow before you convert the home to a rental.

How much down payment should you choose?

Use these filters to pick a number:

1. Cash flow needs: If you need the property to cash flow immediately as a rental, model 20% vs. 25% down and test sensitivity for taxes, insurance, and vacancies.
2. Rate and pricing: Ask your lender for rate quotes at 20% and 25% down (investment), plus any LLPAs. The rate delta can change your payment more than you think.
3. PMI trade-offs (owner-occupant): With 3%–5% down you’ll have PMI, but you also keep more cash for reserves or improvements that can raise rent. Model how quickly you can lose PMI via prepayments or appreciation.
4. Reserves and risk: Many lenders want months of PITI in reserves for rentals. If you’re light on cash after the down payment, consider keeping more liquidity and accepting slightly lower cash flow.
5. Opportunity cost: If you can earn more by keeping cash available for your next deal (or renovations) than you save in monthly interest, a lower down payment may be rational — provided you’re still safe on cash flow and reserves.
6. Exit strategy: If this is your starter home and you’ll rent it later, align the down payment with your exit timeline, expected rent, and rehab plans.
   

State and tax factors that change the math

Your state can materially change monthly costs:

• Property taxes: High-tax markets reduce cash flow at any down payment. Your financial outlook may look wildly different in a high-tax state like New York as opposed to Texas or Florida.
• Insurance: Coastal and severe-weather states can have higher premiums, so budget carefully. Start with a quick estimate of landlord insurance and adjust by zip code.
• Transfer taxes and fees: Bigger upfront costs can tighten your cash position after closing.
• Short-term rental rules: If you’re planning Airbnb, local rules and HOA bylaws can limit your strategy.

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Read more: How the 'Big Beautiful Bill' impacts landlords: A tax breakdown

First-time buyer paths that still work for investors

If you’re early in your journey, these options can get you in the game with less cash:

• House hack a duplex, triplex, or fourplex with FHA (3.5% down) or conventional (as low as 5% down). Live in one unit for the required period, then keep the whole property as a rental.
• Buy a single-family primary residence with 3%–5% down, plan improvements that raise future rent, and convert after you meet occupancy rules.
• Consider VA (if eligible) for 0% down, then convert later — many investors grow a portfolio by laddering VA-financed primary residences over time.
  

Just remember: loans aimed at primary residences expect you to live in the property initially. Always be truthful with your lender about intent.

Conventional vs. FHA vs. DSCR in plain language

• Conventional: Best long-term pricing and flexibility. For rentals from day one, lenders usually want 20%–25% down. For primary residences, 3%–5% down is possible with PMI.
• FHA: Easier credit, 3.5% down for owner-occupants, and more generous debt-to-income allowances. Mortgage insurance lasts longer; refinancing later is common.
• DSCR/non-QM: Approval based on property income rather than your W-2s. Down payment and rate are typically higher, but it can be perfect when conventional underwriting doesn’t fit.
  

Common mistakes to avoid

• Aiming for 20% without modeling 25%: Sometimes 25% down gets you a better rate and positive cash flow for only slightly more cash.
• Ignoring insurance and taxes: These vary widely by zip code and can flip your pro forma from positive to negative.
• Underestimating capex: Roofs, HVAC, and turnover costs happen; budget 5%–10% of rent for maintenance and capital expenditures.
• Skipping reserves: Keep 3–6 months of expenses on hand, especially for your first rental.
• Forgetting liability: Consider landlord liability insurance to protect against tenant injuries or guest claims.
  

Quick checklist to decide your number

• Do I need positive cash flow on day one, or is break-even acceptable while I build equity?
• Have I compared 20% vs. 25% down quotes on an investment loan?
• If buying as a primary residence now, how quickly can I remove PMI?
• Do my state’s taxes, insurance, or HOA rules change the model?
• Do I have enough reserves to sleep at night?
• Will a slightly lower down payment free cash for renovations that increase rent?
  

Final thoughts

There isn’t a one-size answer, but there is a clear process: model your rent, plug in realistic taxes and insurance, and compare 5% (owner-occ), 20%, and 25% down side by side. If you need immediate cash flow and smoother approval for an investment purchase, 25% often wins. If you’re a first-time buyer building toward landlording, starting with 3%–5% down can be smart — just plan your path to drop PMI and stabilize cash flow before you convert to a rental.

When you’re ready to run real numbers, get a quick estimate for landlord insurance so your model reflects true monthly costs.