Looking for conventional loan with 10% down on Multifamily Home

[Shailendra Thakur]

Hello BP.

I am planning to make an offer on multifamily in NJ. The mortgage guy told me that no lender would offer me conventional loan as it is a multifamily and I am only putting 10% down. They minimum need 20% down. He recommended to apply for FHA loan which has higher interest rate and PMI lasting forever.

Please advise.

[Logan Allec]

@Shailendra Thakur, don't discount the FHA loan. House hacking a 3- or 4-unit property using FHA 3.5%-down financing is in my opinion the best option for a young person looking to get started investing in real estate. It frees up so much cash (if you have it) to invest elsewhere.

One thing to keep in mind when looking for an FHA owner-occupied triplex or fourplex is that 85% of the market rents on all the units need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance). This is known as the self-sufficiency rule. It only applies to 3- and 4-unit properties (not SFRs or duplex) bought using FHA financing. I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies. There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search.