Rental Property Investor · GA · Member since 2020 · 24 posts · 12 votes
Good Afternoon Everyone,
I'm new and I'm looking to start out with a 4 unit multi family property. I would like some advice on financing options. Can I use a FHA loan or is there better options?
I'm in the same boat looking for a small multifamily property. I'm going to use the FHA loan and live in the property for at least a year which is the requirement. The good thing about the FHA loan is you are only required to put 3.5% down. You could go the conventional financing route, but the lender will typically require 15-25% down payment depending if you will live there or it will be non-owner occupied. Also, higher interest rates for investment property compared to owner occupied. Regarding how much you can potentially qualify for, talk to your lender. My lender said 75% of fair market value rent in that area reported by the appraiser is factored in for each unit you would not be occupying. For example, if the fair market value rent for a 2 BR in an area is $1,000, the lender would consider $750 as income towards covering the mortgage payments.
I'm in the same boat looking for a small multifamily property. I'm going to use the FHA loan and live in the property for at least a year which is the requirement. The good thing about the FHA loan is you are only required to put 3.5% down. You could go the conventional financing route, but the lender will typically require 15-25% down payment depending if you will live there or it will be non-owner occupied. Also, higher interest rates for investment property compared to owner occupied. Regarding how much you can potentially qualify for, talk to your lender. My lender said 75% of fair market value rent in that area reported by the appraiser is factored in for each unit you would not be occupying. For example, if the fair market value rent for a 2 BR in an area is $1,000, the lender would consider $750 as income towards covering the mortgage payments.
@Patrick Sharr thanks for clearing that up for me I’ll start looking for good units to owner occupy in that case.
Remember when you are running your numbers for an FHA loan to add in the PMI (private mortgage Insurance). It can be pricy and significantly change you profit numbers.
Yes, @Dabvis Le Sutton, FHA is one way to go. As @Patrick Sharr said, you must live in the property if you want to use FHA. If you don't plan to live in the property, you will have to put down 20-25%.
If you have good credit and solid income, I highly recommend going with a low-down payment conventional loan instead. You'll still have PMI, as @John Brinkos, mentioned. Don't forget to put that in your underwriting. The advantage of a conventional loan here, is that PMI will drop off when you hit 78-80% LTV. With FHA, you will have to pay PMI for the life of the mortgage.
@Mateusz Piasta There is no additional closing cost for an FHA loan (unless lender charges you extra fee) You can not have 5% down with a conventional loan for MF property. You can have 3-5% down conventional for a single family. For MF conventional loans usually 20-25% down even in you are planing on living in one of the units.
@Mateusz Piasta, I don't know all the ins and outs of FHA. There are higher closing costs than with a conventional loan, all things being equal. With FHA you pay two kinds of mortgage insurance, upfront and monthly. The upfront is 1.75% of the loan amount. That can be rolled into the loan amount, so easy to overlook as a "closing cost."
@Jaysen Medhurst I’m currently living in California. But My target market is Georgia/Alabama so I’ll look to acquire a conventional loan or look for private lenders. As far as private lenders on MF rentals how do you approach them as far as what they will receive in return if they help you with the deal?
I am new to rental property investing and have been looking into MFs also. I have been doing a lot of research on the different loan programs and for the FHA like the others have said you have to be owner occupant for minimum a year it can be a single family up to a quad plex. Conventional loans also can be used but anything over 4plex needs a commercial loan. Are you a first time homebuyer? If so look in your state I know Maryland and Kentucky, the two areas I have looked at, offer first time homebuyers assistance with down payments or even tax credits
If you want to go FHA, then yes you would have to occupy one of the units. You can go FHA on a mixed use property as well but you may have to argue highest and best use and seek a variance in zoning. In general anything 5 units and up is commercial.
One of the best ways to build equity fast is to live in a multi-family property and if FHA is the best option for you, take it! With only 3.5% down on a 4-plex you'll be building 4x as much equity as you would living in a single family home. This can be a great way to get started so that after a year you can move your equity into bigger properties. Good luck!