Owner Occupied 4 Unit Apartment Complex - Financing?? Help!

[Tim OConnor]

Hi everyone,

I have found a 4 unit apartment complex that is in a desirable neighborhood and passes th 50% and 2% rule. My question: Can I finance this using FHA (3.5% DP) and get a 30 year fixed interest rate? I know this is plausible with 4 unit multi family houses, but does it apply to 4 unit apartment complexes? I appreciate the help!

[David Boykin]

Yes, financing with FHA should not be a problem as long as you can occupy one of the units. If it's fully occupied, this might be a problem. Your mortgage broker can better advise since owner occupancy is based on intent. Not sure if you could get financing without a vacancy at time of closing though.

Also, keep in mind that a 3.5% down payment means you'll pay PMI (MIP) the entire length of the loan. You might be better off with 10% down if you can manage it. If you put at least 10% down, you can drop MIP after 11 years. Otherwise, you have to keep it for the length of the loan, regardless of loan to value.

I financed my 4 unit building at 3.5% down for 15 years (to minimize impact of MIP for length of loan). The 15 year loan eats into my cash flow quite a bit but of course allows for greater equity build up. Looking back, I'd rather have put 10% down on a 30 year loan for better cash flow.

You might also consider impact of the FHA MIP interest rates:

• 15-year, LTV > 90%, 0.70%
• 15-year, LTV < = 90%, 0.45%
• 30-year, LTV > 95%, 1.35%
• 30-year, LTV < = 95%, 1.30%