How to determine maximum loan amount for a multi-family unit?

Question

Doing some research and looking at purchasing a multi-family unit. The piece we can't quite put together is how much we can get approved for. Our lender said we'd get the maximum amount for the FHA loan in our area, however there is not much on the market at that price range.

We found a triplex for 1.6M that seems perfect. Monthly rent for the two non-owner units currently bringing in 11k. Our monthly income on top of that would be 15k for a total of 26k. We have 500k to put down. In theory, the math seems to work, but this is far above the FHA limits. Can we realistically finance this or is it too steep to make work?

Ryan Spath · Answer

I would speak with a qualified investor friendly Lendor. I have a referral if you would like send me a dm.

Pierre Guirguis · Answer

The main constraint here is the FHA loan limits. FHA has hard caps based on county and unit count, and in most markets the limit for a triplex is going to be well below $1.6M. If your lender mentioned the FHA max for your area, that’s essentially the ceiling for that program regardless of income or down payment.

That said, the deal itself may still be financeable, it just likely wouldn’t be through FHA. At that price point most buyers end up looking at conventional multifamily financing (Fannie/Freddie), portfolio bank loans, or sometimes DSCR-style investor loans depending on whether the property will be owner-occupied and how the income supports the debt.

With $500k down on a $1.6M purchase you’re already around a 30% down payment, which is generally within the range lenders like to see on small multifamily properties. The bigger question will be whether the property income supports the loan once taxes, insurance, and operating expenses are factored in.

I’d also confirm whether the $11k rent reflects current leases or projected market rents, since lenders will usually underwrite to the lower of the two. If the income holds up, it may just be a matter of structuring the financing outside of FHA.

Kevin Sobilo · Answer

@Janice Smith, a couple thoughts:

1. When you invest you need to be prepared for things to not go well.

2. Are you prepared for excess vacancy and to cover those missing rents?

3. Are you positioned to handle the costs if rents go DOWN in your market?

4. How common are rentals in that price range in your market? One thing I am leery of is investing in a thin part of the market. When something is less common there is more likelihood for excess variability whether that is increased vacancy or price volatility.

5. Investments often look good when you assume things go well. You need to be prepared for the worst and be realistic about long term average expectations.