Multi-Family Purchase Mortgage Guidelines And Requirements

This Article Is About Multi-Family Purchase Mortgage Guidelines And Requirements

Homebuyers can qualify for FHA owner-occupant Multi-Family Purchase with a 3.5% down payment.  Multi-Family Purchase is an excellent option in buying an owner-occupant home and have the rental income to offset housing expenses. FHA Multi-Family Mortgage Guidelines only require 580 credit scores and a 3.5% down payment. Potential rental income can be used as qualified income on Multi-Family Purchase. Borrowers can live in one of the units and rent out the remaining units and get rental income. Multi-Family Purchase allows the home buyer to become an instant landlord. Borrowers need to meet all HUD Mortgage Guidelines to qualify for Multi-Family Purchase Loans.

Types Of Multi-Family Properties Eligible

What are the types of multi-family properties allowed

In order to qualify for Multi-Family Purchase Loans, the buyer needs to occupy one of the units as their primary residence. For homebuyers who want to get into investing in real estate, buying a two to four-unit multi-family building as their first-owner occupant building is a great start. You need to be an owner-occupant for 12 months and can purchase another primary owner-occupant home.  You may not be able to purchase another multi-family building as an owner-occupant home but you can definitely qualify for a single-family home. This way you will have a multi-family building as a rental investment property and still qualify for another single-family home with a 5% down payment conventional loan.

Here is the type of properties eligible for multi-family purchase:

  • Two unit properties zoned as residential: One unit needs to be occupied by the owner while the other unit can be rented out.
  • Three unit residentially zoned properties where one of the units needs to be occupied by the owner as their primary residence.
  • Four unit residentially zoned properties where one of the units needs to be an owner-occupant property.

HUD Reserve Guidelines On 2 To 4 Unit Properties

Multi-Family Homes are considered higher-risk properties by both FHA and lenders. Mortgage rates on 2 to 4 unit properties are higher than single-family homes. Due to the higher risk factor, HUD requires reserves on Multi-Family properties.

Here are the reserve requirement for multi-family homes:

  • For one to two-unit properties, one month’s of principal, interest, taxes, insurance (PITI) is required
  • Reserves cannot be gifted and need to be borrowers own funds
  • For three to four-unit homes, three month’s of PITI is required
  • Manual underwriting files on one unit properties, one month of PITI is required

Alex Carlucci, Senior Vice President of Mortgage Banking at Gustan Cho Associates at is a multi-unit owner-occupant and investment property specialist. Here is what Alex Carlucci says of rental income about multi-unit homes:

Rental income from the 3 to 4 unit homes is calculated by using the home appraiser’s fair market rent from all units, including the owner occupanat unit, and subtracting the greater of 25 percent of the fair market rent or appraiser’s estimate for vacancies and maintenance. Principal, interest, taxes, and insurance (PITI) divided by the monthly net-self sufficiency income cannot exceed 100 percent for 3 to 4 unit properties. Proposed rental income may be used when verified by the mortgagee by obtaining proposed rental income showing fair market rent on an appraisal. For limited or no history of rental income: Fannie Mae form 1025 or Freddie Mac form 72 – Small Residential Income Property Appraisal Report. If available, prospective leases.

Qualifying For Multi-Family Purchase With A Lender With No Overlays

How to qualify for a multi-family purchase from a lender without overlays

There are many lenders that will not honor potential rental income to be used as qualified income as part of their overlays. For example, many lenders will not allow rental income to be used unless the borrower has had landlord experience for at least two years. This requirement is not a HUD Guidelines. They are lender overlays. Lender overlays are additional mortgage guidelines that are above and beyond HUD Agency Mortgage Guidelines. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Please contact us at 262-716-8151 or text us for a faster response if you need a mortgage company licensed in multiple states with no lender overlays. Or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.

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