Buying Your First Rental Property: What $280,000 Costs in Cash

Step 1: decide whether you will live there

Everything else in a first purchase follows from one fact on the loan application: whether you will occupy the property. The Fannie Mae Eligibility Matrix (August 5, 2026) sets three different limits for the same building.

FHA's rule is that the borrower makes a “Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value”, and at least one borrower must occupy the property within 60 days of signing and intend to stay for at least one year. Living in one unit of a two-to-four-unit building is how the 3.5% reaches a rental; our house hacking page has the 44,005 owner-occupied purchases and the three-unit test. If you will not live there, the down payment starts at 15% on one unit; the 2025 median was 25%, which our down payment for investment property page measures across 326,533 loans.

Step 2: price the three loans on the same house

The example is one $280,000 purchase, bought three ways. Inputs are the Freddie Mac 30-year average of 7.18% (Primary Mortgage Market Survey, week ended November 5, 2026; it was 7.24% the week before), a credit score of 740-759, a 30-year fixed term, property tax of 1.0% of the price a year and insurance of 0.5% a year. The tax and insurance are our placeholders: replace them with the listing's tax bill and a quote. Closing costs are the 2025 HMDA median (2.46% of the loan for conventional one-unit investor purchases, 2.34% for two-to-four units, both from our extract). A loan sold to Fannie Mae also pays the price adjustment from the September 30, 2026 LLPA Matrix; we show it as cash, though lenders may pass it on in the rate (our reading).

One $280,000 house, three loans (our arithmetic)

Column A uses the 2025 median of 25% down, not the 15% the rule allows. At 85% (15% down, $42,000) the loan is $238,000, the price adjustment 5.125% ($12,197.50, the 1.000% score adjustment plus 4.125%) and cash at closing $60,052, before the mortgage insurance that Fannie Mae requires above 80% LTV and that we do not price. With reserves the 85% route needs $71,826, so it moves the cash need by about $19,000 rather than by the $28,000 of down payment saved (our arithmetic). Our conventional loan for investment property page covers the credit score tiers and the limit of 10 financed properties.

Column B is a $280,000 duplex with a base loan at 96.5% ($270,200), the upfront premium of 1.75% ($4,728.50) financed on top, and the annual premium of 0.55% for a base loan of $726,200 or less above 95% LTV (Mortgagee Letter 2023-05). The handbook sets no reserve rule for a one-to-two-unit loan scored by the automated TOTAL scorecard; in manual underwriting it asks for one month of PITI. Because the three-to-four-unit self-sufficiency test does not apply to a duplex, the test that matters is your own income, with the rent counted at 75% of the lesser of the appraiser's rent or the lease.

Step 3: the conventional investor loan, in dollars

For a first rental, the conventional route needs four sums, all before you have collected a dollar of rent.

1. The down payment. 25% of $280,000 is $70,000. The 2025 median among investor buyers was the same ratio.
2. Closing costs. In 2025 HMDA data the median total loan costs on a one-unit conventional investor purchase were $5,677.60, or 2.46% of the median loan, across 54,017 loans that reported them. We apply 2.46% to our $210,000 loan: $5,166. The figure excludes the escrow deposit for tax and insurance (our reading).
3. The price adjustment. Fannie Mae's LLPA Matrix charges an investment property 2.125% of the loan at 70.01-75% LTV on top of the credit score adjustment (0.375% at 740-759): 2.5% of $210,000, or $5,250. At a score of 780 or higher the score adjustment is zero; at 700-719 it is 0.875%.
4. Reserves. Desktop Underwriter asks for six months of PITIA on an investment property: $10,636 here, after the money for closing. Funds taken in a cash-out refinance on the same property do not count, and with other financed properties the guide adds a percentage of their balances, which does not apply to a first purchase (our reading of B3-4.1-01).

Rent helps only a little at first. Fannie Mae multiplies gross rent by 75% and subtracts the PITIA of the subject property, so on this house the rent where the result reaches zero is $1,772.61 divided by 0.75, or $2,363.48 a month (our arithmetic). Our conventional loan page has the 12-month landlord experience rule for what happens above that.

Step 4: the FHA duplex, the route that fits a small account

The $16,123 at closing in column B is the cash that gets a first-time owner into a rental. What you give up: you must live in one unit, the monthly payment is higher ($2,336 against $1,773), and the FHA premium stays for the loan's term at this loan-to-value. What you get: the second unit pays toward it. At the HUD FY2027 two-bedroom Fair Market Rent in Indianapolis ($1,536), your net monthly cost to live in the other unit is $2,336 minus $1,536, or $800 (our arithmetic, before vacancy, repairs and any utilities you pay). For lenders the rent counts as income at 75%: $1,152. A three- or four-unit building adds the self-sufficiency test (PITI divided by net rent no higher than 100%) and three months of reserves, which our house hacking page works through. You cannot use an owner-occupied loan and also intend to rent out every unit; the handbook's occupancy rule is written for a borrower who will live there.

Step 5: the DSCR loan and the rent check

A DSCR loan lends against the rent, not your pay slips. Lima One Capital's rental loan page, read November 12, 2026, says it offers “Up to 80% LTV on purchase and rate/term refi, up to 75% on cash out”, requires that “A property must have at least a 1.0 DSCR ratio”, says there are no personal income or investment experience requirements for single-family rental loans, and states “The investor must also have a 660 FICO score to qualify.” One condition matters to a first-time buyer: the page says “an investor must hold or purchase the property in an LLC or similar entity” to qualify for a business-purpose loan. Those are the lender's claims. We use rent divided by PITIA as the ratio, which is how most lenders state it (Lima One's page does not print the formula, so that is our assumption). Our DSCR loan requirements page compares seven lenders and what is a DSCR loan explains the ratio.

At 80% LTV the loan is $224,000 and PITIA $1,867.45, so the rent needed is:

• DSCR 1.0: $1,867.45 a month.
• DSCR 1.25: $2,334.32 a month.
• If the rate is one point higher (8.18%): PITIA is $2,021.83, and 1.0 needs that much rent (our arithmetic).

Does the rent exist? HUD FY2027 Fair Market Rents against the $1,867 PITIA

HUD publishes Fair Market Rents for its housing programs; they are not a listing or an appraisal, and a house at $280,000 in Cleveland or Memphis would rent for a different amount than the FMR. The table shows where the test bites: at a $280,000 price the payment is about $1,867 a month, and the three-bedroom FMR clears a 1.0 ratio in Indianapolis (1.07) and Columbus (1.02) by a few points, falls short in Memphis and Cleveland, and reaches the 1.2 that Lima One says earns its lowest rates and highest leverage in none of the four. A cheaper house changes this: the payment falls by about $6.67 a month for every $1,000 of price (our arithmetic at the same rate, tax and insurance).

Step 6: what to expect at approval

The public record shows who gets turned down. In 2025, HMDA-reporting lenders decided 77,018 conventional personal-purpose applications for first-lien investment-property purchases (65,755 originated, 11,263 denied); 14.6% were denied (one unit 14.9%, two to four units 12.2%). These are our counts from the FFIEC nationwide file, excluding withdrawn and incomplete files. A denial can list up to four reasons.

Reasons listed on denied conventional personal-purpose investor-purchase applications, 2025 (11,263 denials)

Shares add to more than 100% because a denial can list several reasons. For two-to-four-unit buildings the order changes: collateral appeared in 37.8% of 956 denials (the appraisal and the property) and the debt-to-income ratio in 26.9%. Money shortfalls also show: insufficient cash was listed in 15.8% of denials, so the reserve line in step 2 is a real test. The borrowers who were approved were not first-time buyers on a starter income: the median reported applicant income on a one-unit conventional investor purchase was $189,000 and the median numeric debt-to-income ratio 43% (31,128 of the 65,755 loans reported a number). HMDA does not identify first-time investors, so these medians describe everyone who bought, not a beginner's odds (our reading). A loan that does not ask for your income, such as a DSCR loan, moves the test from your debt-to-income ratio to the rent.

What your savings buy

Cash scales with price. Dividing the "cash including reserves" of each route by the $280,000 price gives its share, and applying that share to your savings gives a price, to the nearest $1,000 (our arithmetic; same assumptions as step 2).

Price you can reach with all of your savings, reserves included

For the FHA route cash is not the limit: income, the loan limit for the county and the rent decide first. The conventional 25% route puts a $280,000 house out of reach until savings pass about $91,000, which is why the first decision is whether to live in the property, buy a cheaper one, or wait.

What a reader can do with this

1. Run the three columns with your own numbers. Replace the price, the tax bill, the insurance quote and the rate; the cash needed is roughly 33% of the price conventional, 26% DSCR and 7% FHA duplex on our assumptions.
2. Count reserves before you offer. Six months of payment is $10,636 on the conventional example; "insufficient cash" is a denial reason on 15.8% of denied applications.
3. Check the rent against the payment, not the listing. HUD's FY2027 Fair Market Rent for your metro and bedroom count is a public baseline; a DSCR ratio under 1.0 is a decision about your own pocket, not a lender's.
4. Ask each lender for the entity rule in writing. Some business-purpose lenders require an LLC; agency loans are made to people. See our investment property loans guide for the map.
5. Compare price tiers, not only rates. A loan at 75% LTV carries a 2.125% adjustment and one at 80% a 3.375%: the step from 75% to 80% LTV costs 1.25 points, or $1.25 per $100 of loan, or about $2,625 on a $210,000 loan (our arithmetic).

FAQ

Sources, read November 12, 2026 unless stated: Fannie Mae Eligibility Matrix (August 5, 2026), Loan-Level Price Adjustment Matrix (September 30, 2026), Selling Guide B3-4.1-01 and B3-3.8-02; HUD Handbook 4000.1 (revised August 12, 2026) and Mortgagee Letter 2023-05; Freddie Mac Primary Mortgage Market Survey (week ended November 5, 2026); HUD FY2027 Fair Market Rents; Lima One Capital rental loan page (the lender's own claims); FFIEC/CFPB HMDA Data Browser nationwide 2025 files for originated and denied applications on investment properties, filtered by our script to first-lien home purchase loans on one-to-four-unit properties excluding reverse mortgages and open-end lines (script and output in sources/). Worked-example figures, rounding and the HMDA medians are our arithmetic; tax and insurance are our placeholders. This is analysis of public documents, not investment, legal, tax or lending advice.