I am interested in purchasing a multi family unit. The property has 4 units, and I am wanting to live in one, and rent the others out. I know this is a common strategy, but my question is regarding financing. I cannot qualify for a conventional loan for the price of this property. I also cannot put 20% down. Seeing as how it will be my primary residence, will a bank give a standard loan taking into consideration rent from the other units?
In my experiance, if you have the money for a DP (20%) the banks will go ahead and count the rent on a property towards your income, otherwise you will have to show some track record for that property's performance. When I moved out of my first house, we didn't have a whole lot of equity in it so the bank didn't count that as part of our income, even though it was rented out. By the time we applied for our new house it had only been rented for a few months. Since that time 3+ years they now count it as income.
I now have two 4-plex's in addition to two rentals, we have put larger DP's on them and the banks count the expected rents as income when doing the loan paperwork. However, when dealing with residential lending (4 or fewer units) the bank is more concerned with your ability to repay where as commercial, 5+ units, looks more at the property's ability to generate income.
This is the point when I would suggest talking with a lending pro. If you would like, I can get you in touch with my lender here in SC who can answer your questions more directly. They write loans nation wide. PM me and I'll give you his contact info.
Thanks for the response. You said I would have to show a "track record" of performance. Would this be the property itself? It does have a track record of rentals for multiple years. Would the seller provide this to me so then I could show the lender? Would me not having experience as a landlord affect this? Would my income be taken into consideration as well?
I will be talking with some lenders, I just wanted to have a knowledge base before I spoke with them.
I'm currently in contract to purchase a 3 family home in which I'll live in one of the units and rent out the others. I'm using FHA so I only need 3.5% down and the bank will add 85% of the rental income toward my income for qualification (this is common). My loan broker works with a lot of banks so he was able to find me one that will allow btwn 50-55% DTI (most banks will only let you go up to I think 41-43%).
I think finding a good mortgage broker is key as he/she has a relationship with a lot of banks (esp those with less strigent standards than the "big" banks).
The property I am interested in is above the FHA loan limit of about $650,000. Also, it is three separate structures. One duplex and two single family homes on one piece of property. I believe the FHA loan stipulates it must be one structure. I cant come up with 20% for a down payment, so I may be out of luck. Hopefully a lender can give me some ideas.
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