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Multi-Family Mortgage Guidelines On Two To Four Units

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This BLOG On Multi-Family Mortgage Guidelines On Two To Four Units Was PUBLISHED On January 7th, 2019

HUD Multi-Family Mortgage Guidelines enables home buyers to purchase 2 to 4 unit properties with 3.5% down payment.

  • Any properties up to 4 residential units is considered residential homes if it is owner occupied
  • Multi-Family Mortgage Guidelines on down payment depends on the individual loan program
  • Buyers can purchase 2 to 4 unit homes with 3.5% down payment
  • However, both Fannie Mae and Freddie Mac require 15% down payment on two unit properties on conventional loans
  • Fannie Mae require 25% down payment on 3 to 4 unit owner occupant multi-unit property financing
  • Freddie Mac require 20% down payment on 3 to 4 unit properties
  • This holds true even though it is owner occupied multi-unit properties up to four units

HUD Multi-Family Mortgage Guidelines On FHA Versus Conventional Loans

HUD, the parent of FHA, allows home buyers to purchase 2 to 4 unit owner occupant properties with 3.5% down payment:

  • One of the units needs to be occupied by the owner
  • FHA minimum down payment requirement is 3.5%, but borrowers needs a minimum credit score of 580 FICO
  • With Freddie Mac’s Conventional Home Possible mortgage program, a borrower is eligible up to 95% loan-to-value on single family homes but not 2 to 4 units
  • When purchasing, Fannie Mae’s conventional guidelines allow a maximum loan-to-value of 85% for 2 units on conventional loans
  • Maximum loan to value is capped at 75% for 3-4 units on conventional loans
    • Maximum cash out refinance loan-to-value limits are 75% for 2-4 unit multi-family properties
  • Freddie Mac’s Multi-Unit Mortgage guidelines are as follows:
    • For a 2 unit primary residence the maximum loan-to-value is 85%
    • It is is 80% for 3 to 4 units
    • Homeowners may be eligible to cash out refinancing up to 75% LTV on multi-unit properties

Investment Multi-Unit Mortgage Guidelines

Investment home financing is for conventional loans only. Government loans do not allow for investment property financing.

  • For a purchase, Fannie Mae and Freddie Mac’s maximum multi-family loan-to-value ratios are capped at 75% for 2-4 unit properties
  • Homeowners may be eligible to cash out up to 70% for 2-4 unit investment homes
  • Gustan Cho Associates at Loan Cabin Inc. offers non-qm and portfolio financing for loan-to-values above 75% on multi-unit homes
    • All non-qm and portfolio loans underwritten based on a case by case scenario

Multi-Family Mortgage Guidelines On Reserves

Multi-Family home financing are considered riskier investments by all lenders.

  • All lenders require reserves on 2 to 4 unit loans
  • Two unit homes may require one months of PITI Reserves. 3 to 4 units will require three months of PITI Reserves
  • Reserves cannot be gifted funds. It needs to be borrowers own funds

Lender Overlays Versus Agency Multi-Family Mortgage Guidelines

Most lenders will have overlays on multi-unit financing. Gustan Cho Associates at Loan Cabin Inc. is one of the few national mortgage lenders with no overlays on government and conforming loans. This includes no overlays on 2 to 4 unit financing.

Here are some typical multi-family mortgage overlays:

Some common overlays include:

  • Requiring higher credit scores
  • HUD allows up to 85% of potential rental income to be used as qualified income
  • Fannie/Freddie allows up to 75% of the potential rental income to be used
  • However, many lenders will not allow borrowers with no rental and/or property management experience to use potential rental income
  • Debt to income ratio overlays
  • No manual underwriting

Gustan Cho Associates at Loan Cabin Inc. are experts in multi-unit property financing. Please contact us at 262-716-8151 or text us for faster response to qualify with a direct lender with no overlays. Or email us at gcho@loancabin.com. The Gustan Cho Team at Loan Cabin Inc. are available 7 days a week, evenings, weekends, and holidays.

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