Home Financing a Multifamily Home

One home financing strategy for buyers willing to take on the role of landlord, multifamily home can be one of the more affordable ways into pricey housing markets.

On both conventional Fannie Mae loans and loans backed by the Federal Housing Administration, a portion of the anticipated rental income can be added onto the borrower’s income at application, which helps people qualify.

The home financing loans are available for owner-occupied properties with two, three or four units. Properties larger than that would require a commercial loan.

Seventy-five percent of the estimated market rent to be generated from the property, as determined by an appraiser, is added to the borrower’s income.

On F.H.A. loans, borrowers taking this type of home financing can put as little as 3.5 percent down, but on three- and four-families, the loan must be “self-sufficient.” This means that the adjusted rent total must be enough on its own to cover the monthly mortgage, including principal, interest, taxes and insurance.

The minimum down payment on conventional loans for this type of home financing is usually 15 percent for two-unit properties, and 25 percent for those with three or four units.

Freddie Mac’s Home Possible program does allow lower down payments of 5 percent on a duplex and 10 percent on three- and four-families for income-qualified borrowers. Borrowers’ income may not exceed 100 percent of the area median income.

Many lenders place overlays, or additional restrictions, on multifamily home financing loans that make it harder for first-time buyers to qualify. Some won’t add rental income onto the borrower’s qualifying income if the rental units are vacant or the buyer has no experience as a landlord.

The reserve requirements are higher on multifamily home financing loans. Lenders may require that the borrower have as much as six months’ worth of mortgage payments in the bank, depending on how much money the buyer is putting down and other factors affecting the riskiness of the loan.

Interest rates are fairly consistent with single-family loans, typically around an eighth of a point higher on a three- or four-family. The conventional loan limits on multifamily properties vary by geographical region.

Contact our home loan agents in San Ramon for home financing and mortgage refinancing.