25% Down to Avoid PMI on a 3/4 Family?

5 Replies

Hi Everyone,

This is the first I am hearing about this on a residential multifamily building - maybe I have not done enough research on the topic but I was hoping to get some insight from the more experienced folks here. I have been saving for a down payment of 20% in order to buy a 3 or 4 family building as owner occupied. Just this past week I finally amassed the amount that is typical for a 20% DP in my area and figured I would call a bank to get pre-qualified given my financials. After running the numbers, the bank advised that I would need 25% for a 3 or 4 family but only 20% for a one or 2 family under conventional financing. Under FHA I can be approved for significantly higher but I do not ever want to pay PMI now that it is locked on for the life of the loan. (and with the recent news from the FOMC, rates may begin to creep up!)

I am going to call other banks as this was only the first one I reached out to but was wondering if this was the norm or if it was somehow based on my financials.

On the other hand, my strategy is to buy my first property, live in it while renting the other units out and do that again within ~5 years and repeat again. Should I choose to go the FHA route, I would have more funds available for my 'second' down payment on the next house. Anyone have any opinions on this strategy and if it is flawed?

PS, I am looking in NYC if it matters.

Appreciate any responses !

Many Thanks

Hello @Garrett M. Its my understanding from talking to lenders that you should be fine with the 20% down on the three or four family. In addition, recently the 80-10-10 (80% primary loan, 10% rider loan, and 10% down) has become available for owner occupants in NJ and NY. This is another way for you to avoid PMI and put less than 20% down.

The issue is FHA have change the rules so much people don't understand there is MI on all FHA deals. conventional is the only product that MI will end after 78%. If you go FHA you have to calculate that it will always be in play unless you have a 15 year loan.

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@Garrett M. if it is owner occupied you should be good with 20% down. I have only seen 25% down for investments. I would ask around for other lenders. If you can, avoid FHA if you have the 20% down

@Wayne Brooks - That is a great question to ask!

I am thinking of revisiting my initial strategy via FHA rather than conventional. If I find a bank that will work with me, putting 20% down would avoid PMI but drain my cash. Going FHA would be less cash down but leave a lot in reserve for cap x, repairs on house #1 and even more important for my next purchase.

Thanks everyone