How to buy a 2nd multi family w/o putting down 20%

24 Replies

Hello BPers,

I bought a 4-plex in Blue Springs, MO (15mi East of Kansas City) this time last year. I am looking to purchase another small multi family in the near future.

I used an FHA loan to fund the first property and I have fulfilled my year requirement. I want to purchase the 2nd property w/ an owner occupant conventional loan.

My dilemma is that several mortgage brokers have told me that I need to put down 20 - 25% because it will be viewed as an investment property.

Could someone point me to a lender in Kansas City area that will work w/ me on the required amount down.

Or could someone help me understand why is it viewed as an investment property if I’m going to occupy it?

Obviously, I have a lot to learn about how lending works, but hey this is a start.

Hey @Eric Brantley , in most circumstances you are only allowed to have one FHA Loan at a time, so you will either need to refinance your current FHA into a conventional mortgage structure or look at exceptions. Exceptions may not apply to you since they are typically for growing families or job relocation. So you may be looking at a 15-20% down payment if you go through a bank.

I would look into refinancing your FHA loan. Do you have 20% equity into as that would help? Keep in mind there will be transaction costs for a refinance so weigh it all out.

Forrest Faulconer

I just tried to go this route in the summer and got shut down. The best banks around me could do was 15% down. It's probably not impossible, but I wouldn't get your hopes up. Although, you'll probably have a better lender than me, my guy wasn't great this time around.

@Eric Brantley

The 15% is the best you will be able to do and it would be on a duplex. 3/4 would be 20% minimum. I'm in the same boat. I did my first triplex as a first time home buyer with 5% down conventional, my second duplex I got 15% down on and am planning to use my FHA this year on a quad. I'll be following this to hear if theres any better options!

@Jacob Lapp

I'm surprised that an FHA loan on your 2nd property is requiring you to put 15% down. I'd like to think that has more to do w/ Covid provisions. Have you reached out to several lenders to verify that in your area?

@Eric Brantley
Can is ask, Why would you want to get a conventional loan if you are going to occupy? You could get another FHA as long as you can prove it is an upgrade.

I bought a owner occupied duplex FHA(3.5%). Refi'd after 2 years into a conventional(appraised with 30%equity). Then pursued another owner occupied duplex FHA(3.5%). During the process of purchasing that second duplex, the lender wanted a written letter to explain my intent for this new property to explain how it would be an improvement to my living situation I.E. closer to work. Larger SQ FT. More bedrooms. Garage. Better parking. I assume they would not allow me to get the FHA unless i can prove to them i have every intent to occupy.

@John Alosio

If I'm not mistaken, I need at least 20% in equity in order to refi or at least for it to make since. Right now, I don't have that much equity. So to avoid refinancing I figured, just keep the FHA loan & get into a conventional loan on the next property.

I am going through something very similar. I used an FHA loan to purchase a fourplex that closed in March. Then covid happened and all of my plans changed... I am in the process of trying to buy a triplex in the east coast town I grew up in to be closer to my elderly parents. The underwriter is ok with me utilizing a second fha loan since I am moving across the country, but at the 25th hour they are saying I need to prove that I have at least 25% equity in my two Oregon properties (sfh and the fourplex) due to covid overlays.

I have a bunch of equity in the sfh, but it would be a stretch to show that much appreciation in the fourplex which I used 5% down for. I asked if broker price opinions could be substituted for appraisals as so avoid spending $1200-$1400 in appraisals. The underwriter said they cant.

I don’t want to hijack this thread, but does anyone see a path forward here?

@Eric Brantley One thing that I would consider doing right now with the 1st property is a Streamline FHA loan. If you have a higher interest rate from the purchase you can do a refinance still in an FHA loan but get the rate down as low as 2.25%. This will help improve your cash flow and then I agree that if you can prove that you are in need of a new home (family is growing, Employment related relocation (more then 100 miles)).

If you are going to do a conventional for your next purchase and it is a 2 unit property then you will need to do 15% down, if it is a 3/4 unit property you will need to do 20% down, and if it is a Single Family with an additional dwelling unit/mother in-law then you can do with 5% down (the ADU is not considered multifamily if it does not have separate utilities/a separate address).

Refi out of FHA loan - that one will become an investment loan.

Find a new lender. There are loan programs out there that will allow 2-4 units to be primary residences and most allow it even if its your second purchase. 

Look for portfolio lenders if they don't resell to secondary market they usually have more flexibility or unique loan programs.

@Eric Brantley let me sum it up for you, there is some bad info on this thread.

First off, you can only have 1 FHA loan at a time, unless you relocate 100 miles away. Period.

There are only 4 options for less than 20% down on a 3-4 unit. Conventional Home Possible, FHA, VA, and USDA. If you aren't a Veteran and aren't buying in a rural area, you can cross off the last 2.

Home Possible has an income cap, and once you go for your second property, my guess is that your income (which includes rental income IF you need it to qualify) will be over the cap. Which then means your only option then is FHA.

In order to buy the 2nd property using FHA, you will need to refinance your current property out of FHA into a Conventional loan, which is at a max LTV of 80% for a 4-unit, if it's still your primary residence. 75% LTV if it's an investment property.

No matter what anyone tells you here or anywhere else, calling different lenders isn't going to change these answers. The lending guidelines are set by Fannie Mae, Freddie Mac, FHA, VA, and USDA accordingly. Now some lenders will impose overlays on top of these guidelines and be more strict, but no lender can be any looser.

Now, there may be credit unions or non-Conventional lenders that offer different solutions. This is called portfolio or hard money lending. Expect to pay higher rates and/or fees. However I don't know of anyone offering less than 20% down on a primary 4-unit except for the options listed above.

And the reason you have to put 20% or more down isn't because it's an investment property, it's because you have no other option as a primary residence unless you refinance your existing property out of FHA into Conventional, which frees up your FHA eligibility for your 2nd house hack.

It's that simple.

Best of luck!

@Zack Karp

Are you familiar with any current standard fha covid overlay requiring you to have at least 25% equity in any properties you already own when making an fha purchase? Is this just my particular lender that is requiring this?


@Todd Ashley that's not a Covid overlay, that's a regular FHA guideline, but this is where most people get confused, including many LO's too.

This only applies in order to use rental income from the UNIT you are vacating, you need to show 25% equity in that property.  If you are already properly claiming rental income on your tax return for the other units of that property, and any other properties, you do not need to prove you have 25% equity in those.

Sounds like either you are confused, or your LO/lender is.  If it's the latter, run.

Best of luck!

@Zack Karp

Ohhhhhh... I’m guessing a little from column A and a little from column B. I vacated the sfh in March to occupy the fourplex, so their income won’t appear on my tax return until 2020 returns are submitted. I wonder if my broker mentioned covid overlays because he was covering his *** for not being aware of this requirement. Or maybe I misunderstood what he was saying. Either way, it is really frustrating that this was not communicated in the beginning - we are so far into this deal now.

@Zack Karp is correct. You need to talk to local banks in the area and ask if they do "in house" mortgages. These are the mortgages that we do that we keep on the books, also known as portfolio loans. Because the banks keep them on their balance sheet and don't sell them off or get some type of govt guarantee(FHA, VA, USDA) the rate will be higher on average, but it's way more flexible on terms and down payments. Hence why the rate will be higher more risk. Good Luck!

Originally posted by @Jacob Lapp :

@John Alosio

Were you required to wait 2 years to refinance?

I was Not required to wait. The property was a "live-in-value-add". Night and weekends of sweat equity took about 2 years to complete.

I refinanced with the hopes of getting up to (or close to) 20% equity so i could do away with the PMI.

To my surprise the appraisal came back with 30%! So i ended up pulling some equity out of the refi. which went to the down payment of the new property. Sort of a slow live-in-BRRRR i guess.


@Eric Brantley

I've been brain storming on this one and a recent industrial bp podcast talked about seller-financing just part of the down payment. I'm currently looking at a package of 2 duplexes next to eachother with different addresses. Which would require 2 appraisals, 2 loans etc. I could afford an FHA mortgage on the package but not on 1 property with 20% on the other. So what I am going to talk to the seller about is doing 20% down on both putting 30K of my own money in and borrowing 85K and repaying this to him in the course of 10 years. (Cashflow is still good with this additional payment) I'll update in the thread if things move forward