HUD Multi-Family Mortgage Guidelines On FHA Home Loans
This BLOG On HUD Multi-Family Mortgage Guidelines On FHA Home Loans Was PUBLISHED On April 11th, 2019
HUD Multi-Family Mortgage Guidelines on 2 to 4 unit properties state home buyers can purchase multi-family units with FHA Loans with a 3.5% down payment.
- HUD Multi-Family Mortgage Guidelines require less down payment requirements on FHA Loans than Conventional Loans
- Fannie Mae/Freddie Mac require 15% down payment on owner-occupant 2 unit purchases and 20% down payment on 3 to 4 units
- HUD Multi-Family Mortgage Guidelines allows 2 to 4 unit owner-occupant home buyers to purchase with 3.5% down payment and with at least a 580 credit score
- 2 to 4 unit properties are becoming increasingly popular among buyers who plan in occupying one unit and renting the remaining units for rental income
- It is an excellent way to invest in real estate. It is also easier to manage since the tenants are all in one location
In this blog, we will discuss HUD Multi-Family Mortgage Lending Requirements on 2 to 4 units.
Borrowers need to meet minimum FHA Lending Guidelines:
- 580 credit scores for 3.5% down payment FHA Loan
- 2 year out of Chapter 7 Bankruptcy discharge date
- 3 years out of foreclosure, deed in lieu of foreclosure, short-sale
- Outstanding collections and charged off accounts do not have to paid off
- Maximum front end debt to income ratio 46.9% and 56.9% back end to get an approve/eligible per automated underwriting system
- Manual underwriting allowed
- Borrowers in a current Chapter 13 Bankruptcy repayment plan can qualify with Trustee Approval and manual underwriting
- No waiting period after Chapter 13 Bankruptcy discharge date
- No landlord experience required
- Reserves cannot be gifted: Needs to be borrowers own funds
Types Of Properties Eligible For HUD Multi-Family Mortgage
FHA only allow owner-occupant primary residence properties to be eligible.
- Any one to four unit residentially zoned multi-family properties is eligible for HUD Multi-Family Mortgage Loans
- Lenders consider two to four unit properties riskier than single-family homes
- Therefore, mortgage rates on 2 to 4 units will be higher than single-family homes
- There are no reserve requirements for one unit homes
- There is one month of reserve requirement on two-unit homes
- However, HUD requires three months of reserves for three to four unit properties
- One month’s of reserves is one month of principal, interest, taxes, insurance (PITI)
Manual underwriting is allowed on multi-family FHA Loans. Manual Underwriting Guidelines apply.
Can I Use Potential Rental Income As Qualified Income?
Great news with buying a 2 to 4 unit multi-family owner-occupant property is that you can use the potential rental income on the non-occupying units as qualified income. The potential rental income is determined by the home appraisal. FHA allows 85% of the potential rental income to be used as qualifying income. This holds true for vacant units. Proposed rental income may be used when verified by the underwriter.
- Fannie Mae form 1025 or Freddie Mac form 72 needs to be completed (Small Residential Income Property Appraisal Report) by the appraiser
Home buyers who are buying a 2 to 4 unit multi-family home and need a direct lender with no overlays, please contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at email@example.com. We are available 7 days a week, evenings, weekends, and holidays.