28% down to but a multifamily?

14 Replies

Just talked to a quicken loans guy and he said I would have to have 70k to cover closing costs and the downpayment. I have great credit - 744. Is this typical? What are other ways to purchase a 250k multifamily for investment without having to spend this much?

I live in Grand Rapids Michigan.

You can live in part of it (up to a 4 plex, i think).  That's about it ... what they're telling you is exactly what you should expect from any bank-type lender.

What were you thinking that you would spend? Are you planning on occupying the property? How many units is the property?

For a non-owner occupied multi-family purchase I always tell my clients up here in Connecticut to be prepared to put 25% down. That quote is not abnormal at all if you are looking to go the conventional bank financing route.

Owner-occupied multi-families are a completely different story.  I have a client of mine right now who is putting 5% down on his purchase.

25% down sounds right for a multi-family conventional mortgage regardless if it's owner-occupied, I believe the down payment for conventional mortgages depends on the number of units. When I purchased a 3-unit property last year (owner occupied) I took out an FHA loan and I think the minimum requirement was 5%.

Unless you plan on living in it, the best you can hope for is probably 20% down through a portfolio lender. Most will still want 25% though

Thats one of the downsides to multifamily. 

With SFH, my recommendation would be to use hard money to buy. If you have a little experience (3 or 4 deals under your belt), you can typically find a hard money lender that will lend 100% of the purchase plus rehab (up to 70% of the ARV). You still have to come out of pocket for the points (4% of the loan) and closing costs but you also get to use the property tax credit to offset some of that.

But most of them won't do that with anything other than SFHs.  Even the 2-4 muti's aren't possible as the exit on those is more difficult.  

So if putting down a big chunk of money is not an option, I would stick with the SFHs. Or try to work with a seller that will provide seller financing for a portion of the deal. Have you asked the seller if they'll provide some seller financing (say 10% of the purchase price or maybe even ask for 15%)?

But even if you find a deal like that, you're still going to likely need at least 10% of the purchase price on multifamily. 

Numbers and financing have always looked better to me on the SFHs - at least in my area. 

@Account Closed

Have you approached the owner directly?  For the most part you are going to get better terms from the bank but you never know until you ask.

Check with your local banks and credit unions.  One of them MIGHT have a 20% down option.  Again, ask.

To the math:

On a 250k offer, you should be putting $62,500 down.  Another $7500 is quite a bit to close.  Definitely shop the origination fee around.  Get them to lock a number in writing for you as well.

Hi Ryan,

If you want a conventional loan and aren't living in the property, you have to put 25% down (20% if it was a single family investment property).  Once you have 4 loans (including your personal residence) in your name, you will have to kick in an extra 5% for a 30% down payment.  

You can try to get the seller to cover some of the closing costs- I believe the max is 2%.  You will get prorated rents at closing so that should lower the total a little, and also the security deposits but that's not your money, you will need to set up an account for those and let the tenants know where their money is being held.

There are various fees associated with closing, plus you will have to pay for insurance and prorated taxes as well.  $70k out of pocket for this type of loan and size sounds right to me.

If at all possible, avoid Quicken Loans.  I had a terrible experience with them earlier this year, there are much better lenders available.  

Kelly

25% down is typical for a multifamily loan. You will also be on the hook for closing costs, title, and the 3rd party reports. You would also want to inquire about what their post closing liquidity requirements are as most lenders require that you have 6-12 months of PITI payments readily available.

I just realized I typed "but" instead of "buy" on accident. I apologize. 

Thanks for all the feedback everyone! This is great. I can already tell this is a great community!

Am I able to occupy the duplex and then rent it out later so that I can take advantage of less down?

Originally posted by @Aaron Montague :

@Account Closed

To the math:

On a 250k offer, you should be putting $62,500 down.  Another $7500 is quite a bit to close.  Definitely shop the origination fee around.  Get them to lock a number in writing for you as well.

 Have you seen the cavaliers payroll this year?

Dan Gilbert needs to pay for it somehow.

The very minimum a lender will allow for a down payment on an investment property for a Fannie/Freddie loan is 20%.  Many lenders will require a 25% down payment.  Also you say your score is 744.  I am assuming that is at least a FICO score.  Keep in mind though there is something like close to 60 Fico Scores.  Your lender likely uses the Mortgage Specific FICO's, but that is not a guarantee.  

Also Fannie/Freddie have different loan requirements for a 700-720 FICO vs a 720+ FICO. 

Originally posted by @Ryan Hoek:

Just talked to a quicken loans guy and he said I would have to have 70k to cover closing costs and the downpayment. I have great credit - 744. Is this typical? What are other ways to purchase a 250k multifamily for investment without having to spend this much?

Just applied for financing on a 3 unit and they were asking for 25% down also, after reading the posts and talking to lenders sounds about right.

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