Down payment on a small owner-occupied multi-family?

Question

I'm applying for a loan for a deal I'm under contract on: a 4 unit which will be my primary residence. I have had my local bank and a loan officer tell me because it's more than 2 units I have to put 25% down, but REI friends in the area, and another loan officer have told me that on anything under 5 units, if I'm owner-occupying, I should not need that much down. I'm in CT. I also own two SFHs in other states--neither is FHA or Vet. benefits, etc. Does anyone know why I have two different sources insisting on 25% down?

Silviano Vasquez · Answer

Unfortunately, the two lenders you are referencing are correct. Fannie Mae and Freddie Mac the two quazi government entities that control the conventional housing market have in their guidelines that a 3-4 unit property has a maximum loan to value of 75%.

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

FHA will allow for up to 96.5% loan to value on a 1-4 unit property.  This would be your best option in purchasing a 3-4 unit owner occupied property with as little down payment as possible.

You could also try a Non-QM / Alt-A lender as they generally can go up to 80% on a 3-4 unit owner occupied residence.

Good luck and I hope you find the financing option that helps you get that property.

Eric Veronica · Answer

@Curran D Bishop check out the Homepossible mortgage. You may qualify for a 5% down conventional loan if your annual income is below the area median income threshold or is the property is in a low income census tract (you may be surprised how many areas fall into this category). I wrote a post about this program specific to The Cleveland market however the same idea applies in CT.

https://www.biggerpockets.com/forums/731/topics/678742-house-hacking-2-4-units-in-cleveland-using-homepossible-mortgage

Silviano Vasquez · Answer

@Curran D Bishop

Non QM / Alt A lenders are non bank lenders. These lenders like Impac, Sprout, NewRez, Argent etc. They portfolio their loans and don't sell them on the second market like the big banks do. That they portfolio allows them to set their own guidelines.

Twana Rasoul · Answer

@Curran D Bishop you could go fha 3.5% down but must meet the requirements such as 75% of rents must cover your PITI (for 3 or 4 unit only). Also you should be able to do 20% down as well owner occupied.  25% minimum if it’s investment on 3 and 4 unit. 2 unit is treated slightly different than 3/4 unit.

Diana Muresan · Answer

@Curran D Bishop you have 2 options, you can do an FHA and since the other SFR are out of state, you will be able to use the rental income for qualifying purposes, otherwise FHA doesn’t allow use of rental income on properties you own within 100 miles radius. Option 2 is FreddieMac HomePossible with 5% as long as your Total monthly income is below your county median, keep in mind that the net rental income is added as well. You could also exclude the rental income to keep income down as long as your income will cover all mortgage and keep your DTI (debt to income ratio) under 45%. Difference between FHA and Freddie Is that you don’t need to refi on Freddie in order to cancel the MI unlike then FHA, so yes, first you try the freddie. Here is the link for Freddie income limit look up, if the property Is located in a low census area, then there is no income restriction

http://www.freddiemac.com/homepossible/eligibility.html

Grant Rothenburger · Answer

@Curran D Bishop I'm no expert on the matter but I'm pretty sure you can get lower than that in owner occupied under 5 units, I'd shop around.

James Wise · Answer

If you're buying 1-4 units that are all resi & you're going to live there you could go FHA. Reach out to some other lenders. Have seen/done/been involved in many of these deals. Perhaps the person you spoke with at the bank is new to the job.

Curran D Bishop · Answer

@Silviano Vasquez thanks for the data. What is a Non-QM / Alt-A lender?

Down payment on a small owner-occupied multi-family?

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