We are looking for a conventional loan for a $1.2 million condo we put under contract in MN. It has four units. Ideally we would like a conventional loan with a down payment of 5%. There is no HOA in place and we are assuming we can't convert it to a townhouse. There are five of us that will be the borrowers but only one of us residing in one of the units. Is it possible to get a conventional loan without a sole borrower on a condo without an HOA? We can do a higher down payment, but we want to explore the possibility of acquiring a conventional loan on this property before going the commercial route.
If anyone has suggestions for creative mortgage lenders licensed in MN that would be great! Thank you!
I don't think this is possible under a conventional loan. Your post seems a bit confusing as to whether this is a 4 unit building you are purchasing or if you are purchasing one condo unit in a 4 unit condo building....
If there is a way @Tim Swierczek will figure it out for you. He works with a lot of RE investors and can figure out a solution.
@John Woodrich it’s a 4 unit building and thanks! I’ll reach out to Tim
@Jonathan Fraundor If you are looking to purchase a four unit building that is a residential property and you should be able to get a conventional loan. However 1.2 million I believe is over the amount of a jumbo loan so you would most likely have to get creative with bringing extra money. Also 1.2 million for a 4 unit building seems ridiculous, but I obviously don’t know the details
The conventional loan limit for conforming loans is $1,054,500 for a 4-unit in MN. There are some jumbos that will do 10-15% down but I don't know of any that allow 3-4 units. If you are somehow only putting 5% down between you all, you will be over the limit and not qualify as a conventional loan. You didn't mention if your group is buying as an LLC or as 5 individual borrowers. This will also cause you an in issue for conventional as most don't allow more than 4 borrowers and if under an LLC, you can't get a conventional loan as an LLC.
Looks like you may be needing to go commercial. DSCR is a highly possible route and will give you the flexibility your description requires. Compared to conventional, the closing costs will be somewhat higher, the origination costs could be between 2.5-4pts, upwards of $2k for an appraisal and environmental docs is not an existing rental unit... but you could be looking at rates in the low 4's provided none of the 5 of you have low credit.
@Nick Belsky Thanks for the reply! We were assuming we'd have to go the commercial route but this DSCR method does sound fascinating! I'll have to look into it as I'm not sure if they'll count STR income
@Jonathan Fraundor & @John Woodrich There are many problems with this request. There is missing information so no one could give an accurate positive answer but there is plenty of info to rule out any possibility of this request getting approved. The following are all reasons this property cannot go conventional as requested, there may be more reasons but these are the obvious reasons based on the post. The good news is you could still qualify commercial, just not conventional as laid out in this post.
The first, is this is a condo?
If yes, it's one unit and the max loan amount is $548,250 in the Twin Cities metro area, if outstate then the loan amount is much less. Either way, you can't finance 95% of 1.2 million on a condo in Minnesota, regardless of location. Second, you state in your post that there is no HOA, which equals No Loan on a condo. Conventional loans have minimum standards for condos and the presence of an HOA is one of them, you also must have a budget, and at least 10% of that budget must be held in reserves by the HOA. Also, one owner cannot control the HOA, and if the structure has more than four units which is not clear in this post no one owner can owner more than 2. So if it's 5 units or more this would be another deal killer.
Is this a fourplex?
If yes, the loan amount in the Twin Cities metro area is $1,054,000 which is nowhere near 5% down on 1.2 Million, not to mention the minimum down payment on an owner-occupied four-plex is 25%, if your total qualifiable income is above $83,440 annually. At the $83,440 max income the approximate maximum purchase price is about $450,000 and would require around $750,000 down to qualify.
Some other notes, the property must either be a condo or a fourplex, it can't legally be both. You must determine what the property is legally and that will determine your loan options, in other words, you can't call a condo that you purchase four units of a fourplex just because you want it to be a fourplex. Zoning matters, if it is a condo you must have fourplex zoning to convert it to a fourplex, and it takes months so in practice you would still need to acquire the property to convert it unless the seller was so desperate for a sale and they thought converting it was their best option. Creative financing can take many forms. Conventional loans must always meet either Fannie Mae or Freddie Mac's guidelines, which means you can get creative in how they are structured but all of your creativity is limited to the guidelines which can't be bent or altered regardless of lender. If you truly want to be creative you need to use a different loan program.
I have at least two lenders who have new guidelines for AirBnB or VRBO income. It's not an impossibility...