Is 25% down required even if I plan to house hack a 5-unit?

Question

Happy July 4 all,

I'm checking in with a question that might be so stupid that it's insulting, but I'd like to know your thoughts if you wouldn't mind sharing them.  I am analyzing my options in my goal of investing in a multifamily property.  I'm happy to house hack - I love the idea of only having to put down 5% for a 4-unit if I'm going to live there.

The challenge is that I'd really like to be able to invest in a 5-unit, but I don't have the 25% down-payment that's required for commercial properties.

So my question is: if I plan to be an owner-occupant in a 5-unit property, is the 25% down payment still required (or might a lender allow for a lower down payment, for whatever reason)?

Andrew Syrios · Answer

Generally homeowner loan products (like FHA) only go up to 4 units. Maybe there's something else out there that goes to 5 or more, but I've never heard of it. Maybe you could find someone who will loan up to 80% (I've seen it done before), but likely, even if you are going to house hack on a 5 unit property, 75% LTV is the most they'll go.

Andrew Syrios · Answer

I should note that you might be able to get something with seller financing or a private 2nd loan that will get you above the 75%.

Russell Brazil · Answer

Most commercial loans will not let you live in the property.

Moshe H. · Answer

Hi @Michele V., I agree with @Andrew Syrios - if you speak with a well-connected broker you might find a commercial lender who goes up to 80% - but keep in mind that closing costs will also cost money. Only commercial lenders will give a mortgage on a 5+ unit and they don't care that you're going to live in the property, to my knowledge.

I have seen a local credit union advertising 90% LTV... sounds too good to be true but it might be worth making some phone calls to your local community banks.

Good luck!

Michele V. · Answer

Everyone, thanks so much for your thoughts! I will keep my expectations low while reaching out to my local credit union as well as a broker. After considering house hacking a 4-plex for a while, I began to prefer the idea of a 5-unit. But I can't make the down payment. So I will just have to start where I am & aim at a smaller multifamily for now.

Michele V. · Answer

Everyone, thanks so much for your thoughts! I will keep my expectations low while reaching out to my local credit union as well as a broker. After considering house hacking a 4-plex for a while, I began to prefer the idea of a 5-unit. But I can't make the down payment. So I will just have to start where I am & aim at a smaller multifamily for now.

Kevin S. Campbell · Answer

The loans are tricky.  I think you should focus on OWC, that way they can set the note to fit the situation.  There is a great book called Street Wise Seller Financing by W. Eddie Speed on the Web that is a short read with just the right information.  The seller has control over the terms of the carry, so both parties can win.

Is 25% down required even if I plan to house hack a 5-unit?

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