Buying an investment property in Texas can be a great way to generate rental income and build long-term wealth. However, coming up with the down payment can be a major barrier for many potential investors. In Texas, lenders typically require a minimum down payment of 20% for investment properties. This means that if you purchase a $200,000 rental property, you’ll need to put down at least $40,000 upfront.
There are few exceptions where investors may qualify for lower down payments on investment properties in Texas. Government-backed loans like FHA and VA programs allow down payments as low as 3.5%. Conventional 97 loans only require 3% down. Lower down payment options often come with tradeoffs like higher interest rates, mortgage insurance requirements, or strict credit score and debt-to-income criteria that many real estate investors may not meet.
Ultimately, paying 20% or more as a down payment for an investment property in Texas sets investors up for success by allowing them to avoid costly mortgage insurance, qualify for better loan terms, and minimize risk. Building up a savings stockpile takes discipline, but the long-term payoff from rental income and equity gains can make it worthwhile for serious real estate investors.
The standard minimum down payment for investment properties in Texas is 20%
The typical minimum down payment that lenders require from real estate investors in Texas is 20%. By putting down 20% of the purchase price as a down payment, investors can avoid paying for private mortgage insurance. Loans with less than 20% down often require mortgage insurance, which protects the lender if the borrower stops making payments. However, mortgage insurance adds extra costs to the loan for the borrower. With 20% down, investors get better loan terms and pay less over the life of the loan.
Government programs allow down payments around 3% to 5%
While conventional loans require 20% down, government-backed loan programs such as FHA and VA loans give real estate investors more flexibility. These programs, designed to help qualified homebuyers get into properties with less cash upfront, allow down payments as low as 3.5%. The FHA 203k loan program also allows down payments around 3.5% and can be used to purchase and renovate investment properties. The downside is that government loans have strict eligibility criteria, including maximum income thresholds and debt-to-income ratios. If an investor doesn’t qualify for these specialized loan programs, they’ll need to meet the 20% minimum down payment for a conventional loan.
97% LTV conventional loans offer exceptions with 3% down
Conventional 97 loans are an alternative financing option that allows real estate investors to put down as little as 3% on an investment property in Texas. Also called 97% LTV loans, these programs take on higher risk by lending to buyers who put down less than 20%. As a result, they come with stricter qualifying criteria and higher interest rates compared to 80% LTV loans. 97 LTV programs also require private mortgage insurance just like other low down payment conventional loans. But for investors with strong credit and financials who may not meet government loan requirements, 97% LTV loans can be a path to buying investment properties with less cash upfront.
Saving up to 20% down or more takes discipline but pays off
While lower down payment options exist in certain cases, paying at least 20% down remains the gold standard when financing investment properties in Texas. By saving up enough for a 20% down payment or higher, real estate investors put themselves in a better position to get affordable loan terms, build equity faster, and reduce risks. Funding a 20% down payment likely means setting aside money for several years in a high-yield savings account or investing account. But the long-term profit potential of rental income and appreciation on investment properties makes it worth the effort for investors who are committed for the long haul.
The typical minimum down payment for financing an investment property in Texas is 20%. While special programs exist with down payments as low as 3%, they come with major tradeoffs. Ultimately, real estate investors should save and prepare to put down 20-25% whenever possible to set their rental properties up for success.