Down Payment Requirements Overview
Commercial real estate loans typically require more equity than residential mortgages. Here's what to expect by loan type.
Down Payment by Loan Type
| Loan Type | Typical Down Payment | Notes |
|---|---|---|
| SBA 504 | 10-15% | Owner-occupied only |
| SBA 7(a) | 10-20% | Owner-occupied only |
| Agency (Fannie/Freddie) | 20-25% | Multifamily only |
| CMBS | 25-35% | All commercial types |
| Bank Loans | 25-35% | Relationship dependent |
| Bridge Loans | 20-35% | Value-add situations |
| Hard Money | 30-40% | Higher risk deals |
| Construction | 25-40% | Plus cost overrun reserves |
Use our commercial mortgage calculator to estimate your monthly payments based on your down payment.
Factors That Affect Down Payment
1. Property Type
Lower down payment:
- Multifamily (Agency eligible)
- Owner-occupied (SBA eligible)
- Industrial/self-storage
Higher down payment:
- Retail (especially non-anchored)
- Office
- Hotel/hospitality
- Special use
2. Borrower Strength
Stronger borrowers may qualify for higher LTV:
- Higher net worth
- More experience
- Better credit
- More liquidity
3. Property Quality/Location
- Class A in primary market: More leverage available
- Class C in tertiary market: More equity required
4. Cash Flow/DSCR
Properties with higher DSCR may qualify for less down payment.
Minimizing Your Down Payment
1. Use SBA Financing
If you'll occupy 51%+ of the property, SBA 504 loans offer as little as 10% down.
2. Seller Financing
Negotiate seller to carry a second position note to reduce cash needed.
3. Mezzanine Debt
Add subordinate debt behind senior loan (expensive, but reduces equity).
4. Joint Venture
Partner with another investor to share equity requirements.
5. Cross-Collateralization
Use equity in other properties to reduce down payment on new acquisition.
What Can Count as Down Payment?
Most lenders accept:
- Cash
- 1031 exchange proceeds
- Gift funds (sometimes)
- Equity from owned property
Generally not accepted:
- Borrowed funds (unless subordinate debt explicitly allowed)
- Retirement accounts (must be liquidated first)
- Equity from property being purchased
Hidden Equity Requirements
Beyond down payment, budget for:
- Closing costs: 2-5% of loan amount
- Reserves: 6-12 months of PITI
- Working capital: Especially for value-add
- Prepaid items: Insurance, taxes
Total cash needed typically exceeds stated down payment by 5-10%.
Example: $2 Million Purchase
| Loan Type | Down Payment | Closing Costs | Reserves | Total Cash Needed |
|---|---|---|---|---|
| SBA 504 | $200,000 (10%) | $50,000 | $30,000 | $280,000 |
| Bank | $500,000 (25%) | $40,000 | $50,000 | $590,000 |
| Bridge | $500,000 (25%) | $60,000 | $40,000 | $600,000 |
Get a Customized Quote
Down payment requirements vary by lender and deal specifics. Contact us to understand your options and find the lowest down payment solution for your situation.
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