Real Estate Investor · Chicago, IL · Member since 2015 · 13 posts · 3 votes
I'm currently in on the hunt to purchase my first Multi-Family property and am going through all my pre-approvals with lenders so I can put an offer in on a Tri-Plex. I plan to "House Hack" and live in one of the units and rent out the others.
My plan WAS to put 5% down and use a conventional mortgage HOWEVER I'm just now finding out that Fannie & Freddie now require a minimum of 25% down for 3 and 4 unit properties.
Have any of you ran across this same problem recently? When was this "rule" changed?
25% vs 5% is a significant difference that makes me re-evaluate if this is a good decision for me or not. I asked if this was specific to the Omaha, Nebraska area and was informed by several lenders that it was a national Fannie / Freddie stipulation.
Any advice here would be greatly appreciated. Thanks,
Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votes
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Tyler,
I am currently under contract for a 4 unit property and I'm able to get 20% down. I spoke to several lenders and only 1 of 5 I talked to was willing to allow a 20% down payment. Based on the lenders I spoke to, I felt fortunate to only put 20% for 4 units. I also notified the bank that I would live in one of the units. If you want to do better than 20%, you may need to shop around and expect a high rejection rate.
Accountant · Lumberton, NC · Member since 2015 · 58 posts · 22 votes
11y
Tyler,
I am currently under contract for a 4 unit property and I'm able to get 20% down. I spoke to several lenders and only 1 of 5 I talked to was willing to allow a 20% down payment. Based on the lenders I spoke to, I felt fortunate to only put 20% for 4 units. I also notified the bank that I would live in one of the units. If you want to do better than 20%, you may need to shop around and expect a high rejection rate.
I was told for a duplex you're allowed to put down 15% but 3/4 units require 25% due to Fannie and Freddie regulations.
I don't mind paying mortgage insurance if it means I only have to come up with $5,000 down rather than $25,000. My preference is to keep as much capital I have freed up for other investment opportunities rather than dumping a large portion of it into one property.
Investor · Vista, CA · Member since 2015 · 163 posts · 58 votes
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Tyler Bain my mortgage broker is working through an FHA 3.5% down for me for an owner occupied duplex. Not sure about 3-4 units, they're still considered residential as far as I know. Definitely talk to some other brokers. The big banks are whack.
Zach
Investor · Newark NJ · Member since 2012 · 104 posts · 61 votes
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Do the houses need work? If so try using a FHA 203K loan. If you use the standard variety, you should be able to get away with 3.5% down. You have to be an owner occupant though (looks like that is your plan). Some additional upfront cost and PMI for the life of the loan. But if it is a good deal, so it and refi latter
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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Are you planning on occupying one of the units? Thats the only way you're getting anything close to 5% down. That's not a change. 20% has been standard for some years now for investment properties.
Yes I plan to live in one of the units for the sole reason of taking advantage of the low down payment options. I'm still being told 25% is the minimum even with applying as owner-occupant.
That's good advice, it looks like my only option may be to go with FHA financing. The PMI for the entirety of the loan is what turns me away the most from FHA, however, as someone mentions above I could always refi later.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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For a low down payment, OO loan, you want FHA. Not a fannie/freddie (i.e., "conventional") loan. That's where you're going wrong. AFAIK fannie/freddie have no low down payment (5%) programs for any size property. There may be VA or USDA programs with low down payments, too, if you and the property qualify. Sorry, not familiar with the details of those.
Investor · Apple Valley, MN · Member since 2013 · 281 posts · 94 votes
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It is true. I took out a loan on a duplex in Minneapolis last year and put 25% down. Now that I know that's what I need for the next one, I have a lot of saving to do. Work, work, save, save.
Rental Property Investor · St Paul, MN · Member since 2013 · 91 posts · 45 votes
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@Tyler Bain I just bought a duplex a few weeks ago, I'm under contract for another, and am actively looking to move my personal residence. If you are planning to occupy the property, there are loans available where you can put anywhere from 0% (USDA, probably rural areas only), 3.5% FHA, and 5-10% conventional. You might have to look but they are out there. I would certainly look at FHA and just plan to refinance if you can't afford to do 10-25% down.
If you are NOT going to live there you will be required to put 25% down to get a conventional loan on a small multi, and 20% on SFR. Though I talked to one bank yesterday who said they may allow me to do a 75% first and 15% second and take the second out for the purchase - I was stunned (happily). I'm also talking to the same bank about getting a line of credit on an investment property I own, they are saying they may go up to 90% LTV. We'll see, hopefully it goes through.
I am currently in the same boat. I was looking for a multiplex 2-3 unit house for my mother in law to live in and rent out the others so she was rent free. She got preapproved and my lender said on numerous occasions FHA was good up to a fourplex with 3.5% down. I was checking up on that online and found the same thing. However I actually found a good triplex and got the "Oh I looked back into the guidelines and now they only apply to SFR." Pretty ticked off. A duplex should still be doable with the low down payment FHA owner occupied though. All I can figure is the rules must have changed somewhat recently. Good luck!
That's exactly the same way it happened to me as well. First the banks were saying "No problem, 5% down is the minimum we require." Then once I started going through the approval processes each one started coming back saying their Underwriters recently informed them that 25% down is the minimum on a 3-4 unit. I'll keep pushing back on them and talking to other banks and report back my findings.
3% down payment program is new. I did an OO 5% down conventional loan last fall. However, like it was mentioned, you must have high credit and it is only for single units.
Rental Property Investor · St Paul, MN · Member since 2013 · 91 posts · 45 votes
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@Tyler Bain I'd be quite surprised if you find a lender who will do a (Fannie/Freddie) conventional with less than 25% down on a multi, but you should be able to get an FHA loan with 3.5% down on a 1-4 unit property that you are going to occupy. FHA is a part of HUD, that is not the same as Fannie/Freddie conventional.
Pullman, WA · Member since 2014 · 18 posts · 9 votes
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You can find some lenders that will do 20% instead of 25% but you have to really look. I found two in the Washington and Idaho area that will do it out of the 10-15 I checked with.
Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
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owner occupied and investment properties has ENTIRELY different down payment requirements.
best practice is to go to mortgage banker or broker, and say what it is you want to buy exactly, and if you intend to owner occupy. never say owner occupied but intend to live elsewhere, that's mortgage fraud and you go to prison.