My first 3 unit multifamily what kind of loan should I expect?

16 Replies

I live in the Chicago area and found a 3 unit apartment that I am interested in.  I ran the numbers, like the area and started looking for loans. 

Was extremely surprised when Firstmerit bank told me that it would be 

30 yr

4.75%

25% down payment! 

I thought I would be putting down around 10-15% am I looking at the wrong bank?  They told me that this is considered an investment property even tho I would be living in it and it is under 5 units.

Any recommendations on banks that will help fund this deal with a lower down payment and interest rate? 

@Ryan S. ...did they mention what it was that caused them to consider it an investment property??

They said because it was going to be rented out that made it an investment property.  I think I am going to have to look for other funding from different banks.

Is this your first home purchase? Did you specifically tell them that you would be living there? My thoughts are inline with yours, as it seems like this would be a primary residence. 

Use a different lender...You should be able to get away with MUCH less than 25%

Hi @Ryan S.

I am a loan officer and this is what I know on this subject. If you are looking for a conventional loan and you are not living in the property, it will consider as an Investment you need to put 20 % down up to four properties and after that it goes to 25 % (this is on SFRs)

If you are looking at up to 4 units and not just a single family you need to add 5 % more to your down payment.

If you want to live in one of the units you do not need this much down payment with conventional you need around 10 to 15 % and for FHA you need 3.5%, but you need to live it the property for at least 1 year before you move.

If you can, I think the best option will be FHA.

Also, you can start looking for the bank that go portfolio loan, but the interest rate and term will not be as good as conventional loans.

Hop this help

@sohrab Khosravi

I will be living it i for over a year.  Do you mind me asking what company you work for?  Or what bank you think I can get this type of loan?

Thanks

@Ryan S.  If its owner occupied, then its not an investment property. Its your primary residence.

Upen Patel, Mortgage Banker

Federal NMLS# 1374243

https://www.fanniemae.com/content/eligibility_info...

as of june 2015 For fannie mae you can reference the table above. Fannie desktop underwriting allows up to 75% ltv for a 3 unit so you will need 25% down to go that route. Now there are banks that might allow lower downpayment with other compensating factors (high credit or high reserves or low DTI) and there are other ways to get a lower DP as long as you get a bank willing to work with you. As it states on the guidelines there are exceptions.

If they follow strict fannie guidelines then it is hard to do. 

If you are a first time homebuyer there are illinois programs that will allow you to get a lower payment. They take longer to process but are well worth it and are usually cheaper than FHA.

For what its worth i was able to purchase my 4 unit in May for 20% down in chicago. So you might have to check around with a few banks.

This post has been removed.

I just purchased a 3-unit with an FHA loan with 5% down. I will be owner occupying the property for at least one year to satisfy the terms of the loan.

The FHA loan has allowed me to secure an investment property with little money down and gives me flexibility after 1 year. I used a local bank (i.e. NOT a BoA, Chase, Wells Fargo). You should look up local banks/credit unions and start calling around, or ask anyone in your network for a reliable reference.

Good luck!

@Kyle Penland

Thank you for the mention! 

@Ryan S.

You should be able to go either FHA or conventional, if you are occupying the property.

FHA requires 3.5% down. If you are looking for little money down, than FHA is a great way to go.

Conventional financing requires 20-25% down even for a primary residence. 

If you are going to live in it, you can get conventional for 5% down. FHA is the favored choice on BP, but if you do not want to be permanently locked into PMI then get on the phone to the banks. Some offer a 5% down product but restrict it so SFR. Some allow 1-4 unit just like FHA for 5% down. Check around and make some calls. Best of luck.

If you find a place that offers conventional 5% down for a 3-4 unit non first time buyer please let me know. I searched when i bought mine and could not find that. I will be buying again in 6-8 months and would love to get a 5% non FHA on a 3-4 unit.

FHA allows 3.5% down on 2-4 units but you'll have PMI indefinitely until you refinance to conventional.

3-4 Unit buildings require 20% down if you occupy one of the units in a conventional loan. They require 25% if you don't plan to live there.

If you go the FHA route, your offer won't be very competitive in this market, so it's going to be challenging to get it done.

I'd stick with 25% down so that you can get a deal done and not have PMI.

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