Professional · Roseville, CA · Member since 2017 · 174 posts · 31 votes
9y
Hello,
I believe that ( at least in Ca_ )That the property needs to be 1 million dollars or more 5 unit or better. That being said when it comes to zoning laws It's considered commercial in most counties. I'm speaking in generalities here and that's how it is in CA.Best of luck
Investor · Austin, TX · Member since 2017 · 54 posts · 11 votes
9y
A four unit complex is not considered a commercial property. A person can used the FHA loan on the four-plex, but look out for the loan criteria. Some mortgage companies required two of the four units to cover the mortgage payments. Using an FHA loan on a four-plex is a great way to jump start a residential investment career.
High Point, NC · Member since 2017 · 37 posts · 4 votes
9y
@Harjeet Bhatti I think conventional loan requires 20% or more downpayment. If investor does not come up with that downpayment amount will conventional loan still be applicable ?
You can get a conventional loan for 5% down with PMi if owner occupied. If you plan on renting out the entire 4 family then they'll want 20%-30% down depending on your credit and the situation...
If you plan to live in the property you can use the FHA products up to a certain dollar limit depending on your county for 1-4 family. Some people that don't have the best credit like to go FHA with the 3.5% down. But with FHA loans the mortgage insurance is there for the life of the loan until you refinance to conventional.
With conventional less than 20% down, you pay PMi but you can have PMI removed once you build the equity without having to refinance.
Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
9y
In Minnesota, 1-4 is considered residential. We will alway write up 2-4 units (occupied) with a commercial contract to protect our investors because it has more provisions that apply to rentals. I would much rather have overkill on a contract rather than miss something like prorated rent.
Have you had any problems with financing? I had a signed commercial contract on a fourplex, and the lender required it to be re-written as a residential purchase agreement.
Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes
9y
@David S. That is an uninformed lender. What happens if you cross off commercial at the top of the contract? A contract whether it says commercial or residential at the top is still a contract. If I use a residential contract and write-in the protections from the commercial contract what is the difference. Lenders just get comfortable seeing the same uniform contracts. Some residential agents are uncomfortable seeing a commercial contract also, but my job is to protect my client.
I believe that ( at least in Ca_ )That the property needs to be 1 million dollars or more 5 unit or better. That being said when it comes to zoning laws It's considered commercial in most counties. I'm speaking in generalities here and that's how it is in CA.Best of luck
There is no value limit or floor for a Commercial Loan. When I got my MFU(5+) it was a commercial in the $300k range. When/if you attempt to refi a commercial, you will find many lenders than will not lend below 500k, but keep look as there are some
The 2-4 are called multis, but are family units financed via conventional loans and if OO, you can get an FHA too.
In Minnesota, 1-4 is considered residential. We will alway write up 2-4 units (occupied) with a commercial contract to protect our investors because it has more provisions that apply to rentals. I would much rather have overkill on a contract rather than miss something like prorated rent.
BRAVO - - yes the commercial has clauses which favor rentals!
@Harjeet Bhatti I think conventional loan requires 20% or more downpayment. If investor does not come up with that downpayment amount will conventional loan still be applicable ?
Yes, you can have a conventional (non-FHA) loan with less than 20% down. In that case, you will need to pay mortgage insurance (PMI). This type of loan has some advantages over FHA IMO ... the major one being that if/when the property reaches sufficient equity, you can have it appraised and drop the PMI while keeping the same loan terms otherwise. Alternately, if rates drop (not likely IMO, but possible), you could refinance instead. With FHA, the PMI is essentially "built-in" to the loan in the form of a higher interest rate, so it can never be dropped from the loan ... in this case, the only way to drop it would be to refinance into another conventional loan, but who knows if the market interest rates will be better or worse when that happens than they are today (they're pretty darn low today) or if you would qualify for the refinance if anything changes.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Also, if you plan to purchase a 4-plex with a FHA loan, you should be aware of that you will need to occupy one of the units as your primary residence and it must pass the self sufficiency rule described here:
Is 4-plex considered commercial property? Can FHA loan be applied for owner-occupied 4-plex?
Anything that is 1 - 4 units can have a regular conventional loan or gov loan on it. If the property is zoned for commercial use and is 1 - 4 units you'll have to use a commercial loan.
5 + units is always going to be a commercial loan.
Something to keep in mind. If you are in the city proper, and you gut 4plex to the suds, city will consider it a commercial, has to be finished to the commercial code. Adds 10's of thousands to the rehab. Just an fyi ....
Lender · Boulder, CO · Member since 2016 · 53 posts · 21 votes
9y
I just bought a four plex with FHA. FHA considers 1-4 units residential, you can even use the current rents to boost your income. Before you move forward make sure that 75% of current rents cover the entire PITI. This is the "self-sufficiency test" mentioned above, and it can really get in the way of closing the loan.
Lender · Boulder, CO · Member since 2016 · 53 posts · 21 votes
9y
Yes, so I purchased a fourplex with three out of four units occupied (the fourth was for me to live in.) You can use the current rents as specified in the lease or the rental rates as determined by your FHA appraisal, whichever is lower.
Something to keep in mind. If you are in the city proper, and you gut 4plex to the suds, city will consider it a commercial, has to be finished to the commercial code. Adds 10's of thousands to the rehab. Just an fyi ....
Dan,
This just happened to me in Houston. I was approved for a residential permit for a 4plex, finished the building, and now that I need power, I'm told I should have gotten a commercial permit. This now has me abiding by the commercial code and now fire code. I am considering combining 2 smaller units and making it a 3 family. Thoughts?