When buying an investment property many investors find themselves in a position to pay cash or leverage the purchase using bank funds. And why not borrow when interest rates are as low as they are? Besides, paying cash for an investment property to be used as a rental ties up the fundsfinancing investment property until you sell or pull out equity in the form of cash during a refinance.

Part of the financing process is how much you should put down and while that is mostly up to you lenders will ask for at least 20 percent down and if you have an extra 5.00 percent, you can get a slightly better rate or even lower your closing costs associated with the loan.

Let’s look at some numbers to see how that plays out. Say you have a single family home that’s currently cash flowing rather well but the owner wants out. The sales price is agreed to at $250,000. If you put down 20 percent, that’s a $50,000 down payment and your interest rate might be around 5.00 percent using current 30 year fixed rates. The principal and interest payment is then $1,103 per month on a $200,000 loan.

Now consider a 25 percent down payment. Your loan amount is lower at $187,500 and your interest rate on that same 30 year fixed rate loan drops slightly to 4.875% resulting in a $992 per month mortgage payment.

Yet you have one more option, you can keep the 5.00 rate and still put 25 percent down and now the lender can credit you approximately 1.00 percent of the loan amount toward your closing costs which can pay for lender fees, title insurance or other third party charges. The monthly payment in this scenario is $1,006 and you get a $1,875 loan credit as a bonus. This bonus will vary based upon market conditions and your loan amount but generally speaking you can expect a 1.00 percent credit from your lender. Talk to your loan officer and financial planner about all three options but you just might find the lender credit to be your best option.