Investing in real estate for the long term typically means leveraging the transaction with a loan and putting as little down as possible. The most competitive interest rates by far for this type of deal belong to lenders who underwrite loans toFinancing Tips for Real Estate Investors standards set forth by Fannie Mae and Freddie Mac. And, most lenders also offer different loan terms to accommodate the individual investor. The rule of financing still applies however, the longer term, the more interest paid over the life of the loan and without extra payments toward principal, most equity gains will be had via property appreciation rather than loan amortization.

There are some lenders who offer conventional financing with as little as 15 percent down, this keeps more money in your pocket for other projects. However, this program also requires a mortgage insurance premium be purchased as is the case for all conventional mortgages with less than 20 percent down. This additional premium will eat into your monthly cash flow. At minimum, you should put 20 percent down. You can certainly put more down, that’s up to you, but 20 percent is the least you can pay without mortgage insurance.

Buying with as little down as possible also means less money to you at the closing table should you decide to sell sooner rather than later. There are more selling costs associated with financing compared to what a buyer will face, primarily as it relates to real estate commissions and title insurance charges.

 

With regard to term, most lenders offer financing in five year increments beginning with 10 years up to 30. There are 40 year loans but recent CFPB regulations remove certain protections for lenders for any loan term beyond 30 years. The shorter the term, the lower the rate but in exchange your monthly payments will be higher. Explore all your options and don’t just think in terms of a 30 vs. 15 years, take a look at 20 and 25 year terms as well. That might very well put your rental income and mortgage payment in the sweet spot.