Buying residential multi-family unit apartments ( 2-4 units)
New to Real Estate · Chicago, IL · Member since 2021 · 17 posts · 6 votes
Buying residential multi-family unit apartments ( 2-4 units)
3 Replies
- 2ySasha MohammedPro MemberLender · Costa Mesa, CA · Member since 2018 · 337 posts · 245 votes
Hey @Justin Williams,
I'll start by saying even the most flexible loan scenarios will look at credit. how it relates to the loan process, however, will differ depending on which loan type you go with.
my gut punch reaction in this is that your credit score is more about limiting your LTV due to the subject prperty being a multi-family, or potentially driving the rate up so that you no longer qualify (rates are higher on MF than on SFR typically)....it also could be about how your lender is calculating (or not calculating) the rental income coming from the different units. Fannie/ freddie have different guides on this, and i do see different lenders interpret them differently. for example, one requires you to OWN your primary residence in order to use rental income on the subject MF, the other will let you do rental income from your MF subject property with a "present housing expense" (rental housing expense being ok) so long as you have a 1 year + history of landlording (which it sounds like you do). maybe ask your mortgage pro if they are giving you credit for rental income from the subject property units? and if not, why not?
Another option if this is strictly for investment purposes, you could try to go DSCR. we have one lender that will allow for 1-4 units (inv. prop solely) who will go as low as 620 fico, but your LTV may be limited to, say, 70%. qualifying would be based on the rents received, not off your $100k income. there are options out there, keep working at it and get a 2nd opinion even on a full-doc loan.
hope this was helpful to some degree!
- Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes2y
Quote from @Justin Williams:
Hello,
I’m in the process of obtaining a loan to buy a multi-family unit apartment. For 6 months, I’ve been renting out my house that I bought 1.5 years ago. With that being said this would be my second project, but I keep running into problems when going for a loan to buy the multi-unit. I’m an engineer that makes a little bit over 100k before taxes and my credit score is 688. I was told that “Due to my Mortgage Credit Score being 660ish. I won’t be able to get funded for a multi-family but I’m pre-approved to get another single family for 300k!” Never have I ever heard of this mortgage credit score or someone else being stopped from getting a loan for a multi-unit due to this issue. Can someone guide me through this process and help me understand what’s going on here? I want to get a multi-family unit not a single family. Feel free to respond however you can. Thanks!
I recommend chatting with a few lenders to explore your options. Is this for a house hack or non-owner occupant purchase? Let me know if you need some lender recommendations and I'll get you connected.
- 2yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
It sounds like you're encountering some challenges with obtaining financing for a multi-family property due to your credit score. Let's break down the situation and explore some potential solutions:
Mortgage credit score is the credit score used by lenders for mortgage loan approvals, influenced by factors such as credit history, debt-to-income ratio, and employment history. It significantly impacts loan approval, with a 660 score generally considered fair. However, some lenders may have stricter requirements for multi-family properties, as they are considered higher risk due to rental income fluctuations and vacancy rates.
To improve your credit score, consider paying down existing debts, making timely payments on outstanding balances, and avoiding new credit inquiries. Explore different lenders, as not all lenders have the same credit score requirements. Some lenders specialize in working with investors and may be more flexible with credit score requirements for multi-family properties.
If traditional lenders are unwilling to approve your loan due to your credit score, consider alternative financing options, such as working with private lenders, seeking seller financing arrangements, or partnering with other investors. Consult a mortgage broker to navigate the financing process and provide personalized advice based on your financial goals and circumstances.
By understanding the factors impacting your ability to secure financing for a multi-family property and exploring alternative options, you can work towards achieving your real estate investment goals. Don't hesitate to seek professional advice from mortgage brokers or financial advisors to help you navigate the process effectively.
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