For decades, real estate investors financed a property purchase with 80-20. That is, 20 percent down, 80 percent on loan. Certainly, there have been many who put more down, but 20 percent was considered the bare minimum at the time. Today, there are many more options.
There are now many more ways to finance a property purchase, whether for pure investment or primary residence. For example, one common way is to take out more than one loan. The buyer puts 5 percent in, and effectively borrows the other 15 percent on a separate loan, at a much higher interest rate.
The downside to this method is not just limited to the higher interest rate on the second mortgage loan. Many lenders might require private mortgage insurance since the buyer doesn’t meet the standard 20 percent minimum. These fees are usually hefty.
Theoretically, it is possible to have your lender remove the PMI requirement after enough payments have been made, but it rarely happens. Once the loan (or loans) has been paid down so that the loan-to-value ratio is at 80 percent, then lender will consider removing the private mortgage insurance cost from the monthly payments. However, before that happens, the loan is refinanced or the property sold.
There are still other sources of financing. For example, housing manufacturers of a planned community will often be willing to fund a home loan for early buyers when considering property in a new development. Such loans are frequently available at only 5 percent of the purchase price.
For the really daring it’s possible to ‘buy’ a property, then sell it, without ever owning it — at least not for long. It’s possible to buy a property, establish a contract, and then sell the contract for anywhere from $500-$5,000 without ever taking possession or even being on the title. Profits are usually smaller, but obtained quicker, though deals require excellent credit.
You can finance a property investment by forming a limited partnership. Arrangements cover the spectrum. In some, each partner puts up some percentage of the cost, usually half and half, but sometimes profit is apportioned according the original percent invested. In some cases, it’s possible for one partner to invest money, while the other(s) performs services —— such as repairs on a ‘fixer-upper’. The deals are as varied as people.
For those with low incomes, or military service, or other special circumstances various government loan programs are available — though they’re usually limited to individuals intending to occupy the property.