Conventional Mortgages without being owner occupied?

Question

There are 2 small multi-family units (tri-plexes) that I would like to purchase. At least one of them....not sure I would qualify for both. But I would prefer to be able to get a conventional mortgage on them. They will not be owner occupied - I cannot move from my current primary residence. Are there ways to take advantage of a conventional mortgage without it being owner occupied?  I also have young adult children that I would like to be able to help get into a house - wondering if there is a way to structure it so one of them is on the deed (not mortgage) so they would be occupying one of the units. Thoughts??

Ash Hegde · Answer

You might qualify for a conventional loan based on your personal debt to income ratio, but you will not be able to get the FHA 3.5% down payment option. You would have to put 25% down.

You may be able to do something with your children however. They could be the owner occupant and primary borrower, and you could be the co-borrower to help them qualify. This would allow them to use the 3.5% down option and you can gift them the down payment.

Stacy Raskin · Answer

DSCR loans have 30 year fixed mortgage options and the rates are investment property rates. They typically start at about one percent higher than current owner occupied rates if you have strong credit and at least 20% down so 6.8 vs 7.8% for example. They don't use personal income and don't consider your debt to income ratio. They are ideal for investors who are looking to maximize their net worth since they use only your credit score and rents to qualify the loan.

Also, some lenders will use market rents provided by the appraiser so you can buy an unoccupied property and still get a DSCR loan. Also, DSCR loans usually have a minimum loan amount of $100-150K depending on the lenders I work with.

Here's a bit more in detail about how rates are calculated for DSCR loans:1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing generally takes a hit. I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350Insurance = $100Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250Insurance = $100Association Dues = $25Total PITIA = $1875Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23Lender terms and fees vary widely.

Dave Skow · Answer

@Maryanne Kichline- thanks - if buying  3plex  for investment  purposes  - conventional loan is avaialble  with  a 25%  down payment ....2) if you  have  one of your  kids  be a  cosignor  on the loan - they  should be able to  go on the title and not the loan   ( check with a local  title / escrow   firm about this  for your location )

Carlos Valencia · Answer

Hello Maryanne,

Yes you can use conventional for investment properties with 25% down payment. Definitely get in touch with a mortgage broker to go over the mortgage planning with you and see if you can qualify for both. With 25 % down on each. Hope that helps.

@Albert Bui @Matthew Kwan

Carlos Ptriawan · Answer

alternatively you could use conventional and buy the property as second home.

Stacy Raskin · Answer

You're welcome! Let me know if you would like to discuss anything.

Maryanne Kichline · Answer

Thank you so much! Very helpful!

Maryanne Kichline · Answer

But aren't these typically very high interest rates and used for short terms?

Eliott Elias · Answer

Utilize DSCR lending. They will qualify the property, not you and you can get as many as you want.

Conventional Mortgages without being owner occupied?

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