Financing an Owner Occupied 4-Plex

[Reis Pieper]

My wife and I are in the process of purchasing a 4-plex in Omaha, NE. This will be our second property. Our first is a SFH that we are currently living in and planning on renting out after we move into the 4-plex.

Now that we have the deal, we’re trying to figure out the best way to finance it. The purchase price is $300,000. The monthly income is currently $3400 with all 4 units rented or $2350 with us occupying one of the units. Rent hasn’t been increased in at least a couple of years and there is also opportunity to renovate each of the units to bring them up to date and increase the monthly rent.

The lender we used for our first property is offering a conventional loan at 15% down. From my understanding, an FHA loan is also an option at 3.5% down. What other options do we have?

Any thoughts, suggestions, or connections would be appreciated!

[Scott E.]

Conventional or FHA are your best options if you are going to owner-occupy. You will need to pay PMI if you're not putting 20% down, but these loan programs are otherwise the most ideal options for you.

[Kelly Asmus]

Compare the rates and programs. The more money you put down, the lower your interest rate will be because you are less risky of a borrower. It's slight, but every little bit helps. Compare the programs, monthly payments and make sure your project cash flows. Also ask about how long you have to technically "owner occupy" as FHA tends to be a little stricter with their guidelines and appraisals.

[Andrew Freed]

@Reis Pieper - FHA or Conventional is where its at. In addition to the above recommendations, I would also recommend that you reach out to every local credit union and bank within a 45 mile radius and inquire about low down payment owner occupied 3-4 family loans. I did this and found a portfolio lender that offered a 5% conventional owner occupied on a 3-4 family at a whopping 4.5% interest rate. They have these loans out there, you just have to search tirelessly and inquire with every local bank.

Also, join all of your local Facebook real estate investor groups and inquire there as well. At the end of the day, a 5% conventional is always better than a 3.5% FHA due to the PMI. FHA has an upfront PMI fee (I believe its 1.25 points) as well as normal PMI and it will always stay associated with the loan. With conventional, once you hit around a 20% equity, you can reach out to your bank to remove the PMI insurance, which can save you hundreds of dollars per month.