How do lenders differentiate between multi family and single fam

12 Replies

Looking to buy my first property and will have my parents as non-occupying co-signers (I will be occupying the home though). Looking at the Home Ready program through Fannie Mae. I understand when having non-occupying co-signer on a 2 to 4 unit property you need 15% down. My question though is how do they determine what is  considered multi family and what is not? I'm looking at a property that has R2 zoning it is listed  as a single-family with an accessory unit in the public records. That accessory unit is a four car detached garage with a two bedroom apartment on top and does have a permit from the township to be occupied. It also has separate utilities but shares the septic system. Could  this come back as a two unit property in the appraisal therefore causing me to put down 15% instead of 3% ? Every lender I've talked to has said it's a gray area and that we won't know until the appraisal comes in. Thanks in advance for any advice/insights/personal experiences.

Most of the lender has an separate appraisal department which can help you on this scenario to determine the type of property although last decision is from appraisal company. You can ask your lender if they can help you to determine the type of the property. 

Every county has different requirements as to what constitutes a 2 unit vs ADU property. I would suggest consulting with your county assessor direct. Typically an ADU is a subset of the main property, where as a duplex each unit is more or less equal. However, confirming with your assessor is the only way to determine what is legal and how it should be reported on the appraisal.

Originally posted by @Katie Stroman :

Looking to buy my first property and will have my parents as non-occupying co-signers (I will be occupying the home though). Looking at the Home Ready program through Fannie Mae. I understand when having non-occupying co-signer on a 2 to 4 unit property you need 15% down. My question though is how do they determine what is  considered multi family and what is not? I'm looking at a property that has R2 zoning it is listed  as a single-family with an accessory unit in the public records. That accessory unit is a four car detached garage with a two bedroom apartment on top and does have a permit from the township to be occupied. It also has separate utilities but shares the septic system. Could  this come back as a two unit property in the appraisal therefore causing me to put down 15% instead of 3% ? Every lender I've talked to has said it's a gray area and that we won't know until the appraisal comes in. Thanks in advance for any advice/insights/personal experiences.

If it's an SFR w/ ADU, that counts as a SFR not a duplex.

Even if it is a duplex, Freddie Mac's Home Possible (their answer to Fannie HomeReady) will do 95% LTV on a 2-4 unit property.

Originally posted by @Hillary Gries :

Every county has different requirements as to what constitutes a 2 unit vs ADU property. I would suggest consulting with your county assessor direct. Typically an ADU is a subset of the main property, where as a duplex each unit is more or less equal. However, confirming with your assessor is the only way to determine what is legal and how it should be reported on the appraisal.

Thank you for the info. I called the county assessor and the property is registered as a single family with an ADU. The apartment above the garage in the ADU does have a permit from the township to be occupied/rented. I was told by an appraiser and mortgage broker that having a Legal rental unit on the property makes it a 2 unit property. Do you know something different? Thanks!

Originally posted by @Chris Mason :
Originally posted by @Katie Stroman:

Looking to buy my first property and will have my parents as non-occupying co-signers (I will be occupying the home though). Looking at the Home Ready program through Fannie Mae. I understand when having non-occupying co-signer on a 2 to 4 unit property you need 15% down. My question though is how do they determine what is  considered multi family and what is not? I'm looking at a property that has R2 zoning it is listed  as a single-family with an accessory unit in the public records. That accessory unit is a four car detached garage with a two bedroom apartment on top and does have a permit from the township to be occupied. It also has separate utilities but shares the septic system. Could  this come back as a two unit property in the appraisal therefore causing me to put down 15% instead of 3% ? Every lender I've talked to has said it's a gray area and that we won't know until the appraisal comes in. Thanks in advance for any advice/insights/personal experiences.

If it's an SFR w/ ADU, that counts as a SFR not a duplex.

Even if it is a duplex, Freddie Mac's Home Possible (their answer to Fannie HomeReady) will do 95% LTV on a 2-4 unit property.

Thanks however I will be using my parents as non-occupying co-signers. I have read that all co-signers using the Home Possible program must be using the property as their primary residence. Correct?

Originally posted by @Harjeet Bhatti :

Most of the lender has an separate appraisal department which can help you on this scenario to determine the type of property although last decision is from appraisal company. You can ask your lender if they can help you to determine the type of the property. 

Thank you! I've talked to several lenders. I've been told that it's not possible to it's a gray area to we won't know until the appraisal comes back.  Not sure whether to take a chance or find a "true single family". Definitely interested in finding a way to create some cash flow where I live and felt this would have been perfect for that however I do need a co-signer and I don't have a large down payment. If you know of anything please let me know. Thanks!

Originally posted by @Katie Stroman :

Thank you for the info. I called the county assessor and the property is registered as a single family with an ADU. The apartment above the garage in the ADU does have a permit from the township to be occupied/rented. I was told by an appraiser and mortgage broker that having a Legal rental unit on the property makes it a 2 unit property. Do you know something different? Thanks!

Sometimes something is called an ADU when it's a 2nd unit, sometimes something is called a duplex when it's really a SFR w/ ADU.

Here's the authoritative source on the subject, Ms. Fannie Mae Herself:

Fannie Mae will purchase a one-unit property with an accessory unit. An accessory unit is typically an additional living area independent of the primary dwelling unit, and includes a fully functioning kitchen and bathroom. Some examples may include a living area over a garage and basement units.

Which jives pretty well with what you describe:

I'm looking at a property that has R2 zoning it is listed as a single-family with an accessory unit in the public records. That accessory unit is a four car detached garage with a two bedroom apartment on top and does have a permit from the township to be occupied. 

Not all lenders follow every Fannie guideline, some are more restrictive, for example some may have overlays that say "ADUs are considered 2nd units."

Originally posted by @Chris Mason :
Originally posted by @Katie Stroman:

Thank you for the info. I called the county assessor and the property is registered as a single family with an ADU. The apartment above the garage in the ADU does have a permit from the township to be occupied/rented. I was told by an appraiser and mortgage broker that having a Legal rental unit on the property makes it a 2 unit property. Do you know something different? Thanks!

Sometimes something is called an ADU when it's a 2nd unit, sometimes something is called a duplex when it's really a SFR w/ ADU.

Here's the authoritative source on the subject, Ms. Fannie Mae Herself:

Fannie Mae will purchase a one-unit property with an accessory unit. An accessory unit is typically an additional living area independent of the primary dwelling unit, and includes a fully functioning kitchen and bathroom. Some examples may include a living area over a garage and basement units.

Which jives pretty well with what you describe:

I'm looking at a property that has R2 zoning it is listed as a single-family with an accessory unit in the public records. That accessory unit is a four car detached garage with a two bedroom apartment on top and does have a permit from the township to be occupied. 

Not all lenders follow every Fannie guideline, some are more restrictive, for example some may have overlays that say "ADUs are considered 2nd units."

This is helpful, thank you! So how do I go about finding lenders without the strict overlays? Just keep calling different ones and asking them specifically if they count SF with an ADU as 1 unit not 2? Should I focus on banks or Mortgage brokers? Are you licensed in PA.?

Originally posted by @Katie Stroman :

Thank you for the info. I called the county assessor and the property is registered as a single family with an ADU. The apartment above the garage in the ADU does have a permit from the township to be occupied/rented. I was told by an appraiser and mortgage broker that having a Legal rental unit on the property makes it a 2 unit property. Do you know something different? Thanks!

It is my understanding that if the county has it registered as an SFR and ADU, and the property meets all the requirements set forth by the county to make it so, then it should be completed as such on the appraisal report. This would mean the appraisal would be completed on a single family 1004 with the ADU box checked (as opposed to a 1025 2-4 unit report).

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