Financing And Buying 2 To 4 Unit Property

Any property up to 4 units is considered a residential property and residential mortgage lending applies on buying 2 to 4 unit property.  Home buyers thinking  buying 2 to 4 unit property can purchase the property as owner occupied units and the down payment required depends on the type of mortgage loan program they choose.  Buying 2 to 4 unit property can also be purchased as investment property mortgage loans, however, with investment homes, FHA Loans are not eligible because FHA Loans only applies to owner occupied properties.  2 to 4 unit property as owner occupied homes is a great way to get rental income and many 2 to 4 unit property homeowners can often times live rent free because the rental income offsets the mortgage payments.

FHA Loans On Buying 2 To 4 Unit Property

FHA allows 2 to 4 unit property home buyers to purchase them with a 3.5% down payment.  There are no reserve requirements on a two unit property, however, three months reserves of principal, interest, taxes, and insurance are required on 3 to 4 unit properties.  The down payment of 3.5% can be gifted on a two to 4 unit property, however, the three months reserves cannot be gifted and needs to be the borrower’s own funds.  Reserves does not have to be cash and can be liquid assets such as IRA, 401k, Keogh, and investment accounts.  Minimum credit scores to qualify for 2 to 4 unit properties with FHA Loans are 580 FICO.

Conventional Loans On Buying 2 To 4 Unit Property

Conventional Loan programs require 15% down payment on 2 to 4 unit property purchases and also require reserves for 3 to 4 unit properties.  Minimum credit scores to qualify for a conventional loan for 2 to 4 unit properties are 620 FICO.

Potential Rental Income On 2 To 4 Unit Properties

Potential rental income can be used to qualify on buying 2 to 4 unit properties.  FHA allows up to 85% of the potential rental income of 2 to 4 unit properties to be used to qualify for the borrower’s income in calculation their debt to income ratios.  Conventional loan programs allow up to 75% of potential rental income to be used to qualify for the borrower’s income in calculating their debt to income ratios.

Landlord Experience

Many mortgage lenders will require two years landlord experience from the mortgage loan borrower of a 2 to 4 unit property purchase in order for them to count the potential rental income, especially with conventional loans.  If you run into a situation where the mortgage lender has overlays on landlord experience, please contact me at Gustan Cho Associates at 800-900-8569 or email us at gcho@gustancho.com.  We are available 7 days a week, including holidays.

How Long Do I Need To Be Owner Occupant

If you are purchasing a 2 to 4 unit property via a FHA insured mortgage loan, you need to be an owner occupant for at least 12 months.  After 12 months living on the 2 to 4 unit property, you can qualify for another owner occupied home loan.  You may be eligible for another FHA home loan after 12 months as long as you do not purchase another multi unit property and purchase a single family home.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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