What Are Mortgage Guidelines On Multi-Unit Homes

What Are Mortgage Guidelines On Multi-Unit Homes

This BLOG On What Are Mortgage Guidelines On Multi-Unit Homes Was UPDATED On January 14th, 2018

Multi-unit homes are two to four unit residential homes. Home Buyers can purchase any properties between one to four units as owner occupant properties with FHA, VA, USDA, and Conventional Loans.

  • Owner occupied multi-unit homes are where the owner lives in one unit and the rest of the unit is rented out for rental income
  • There are two types of multi-unit homes mortgage loans: 
    • FHA multi-unit homes mortgage loans
    • Conventional multi-unit homes mortgage loans
  • Veteran Home Buyers can also purchase two to four unit properties with VA Home Loans

FHA Loan Requirements On Two To Four Unit Properties

Home buyers can purchase two to four unit properties with FHA Loans.

Multi-unit properties are two to four units.

  • Multi-unit homes can be purchased through FHA loans
  • Minimum down payment required is 3.5% down payment on any two to four unit owner occupant properties
  • The owner of the multi-unit home needs to occupy one of the units
  • Home Buyers cannot purchase two to four unit properties and claim it will be owner occupant and not occupy the property
  • Home Buyer needs to occupy one of the units for at least one year from the closing date and can rent out the remaining units
  • Rental income of the rental units can be used to as qualify income
  • However, 85% of the potential market rent on the non-owner occupant units can be used for qualifying income towards the borrower’s debt to income ratio calculations
  • Multi-unit homes are an excellent way to offset the home buyer’s income due to the additional rental income
  • If the home buyer plays their cards right, they can live mortgage free if they get enough rental income to offset their monthly mortgage and building expenses

Financing Multi-Unit Homes: Conventional Financing

To purchase multi-unit properties via the conventional loan route, the multi-unit home buyer needs a minimum of 15% down payment. The down payment requirement is substantially higher on conforming loans unlike FHA multi-unit home financing of 3.5% down payment.

  • As with the FHA multi-unit mortgage lending program, an owner occupied multi-unit mortgage loan borrower needs to occupy one of the units as their primary residence for a period of at least one year
  • Conventional loan multi-unit home buyers can us 75% of the market rate rental income for the rental units in qualifying for their conventional multi-unit mortgage loan

Rates And Terms Of Multi-Unit Homes

Mortgage rates on multi-unit properties are slightly higher than single family homes.

  • Lenders view two to four unit properties as riskier investments than single family homes
  • Mortgage lenders may also require reserves and higher credit scores for multi-unit properties mortgage loan borrowers

Buying Chicago Two Flat With Illegal Basement Apartment

The City Of Chicago and its surrounding suburbs has one of the highest concentrations of two to four unit apartment buildings.

  • A substantial majority of these two to four unit properties have illegal basement apartments
  • The city of Chicago Building Department is well aware of these illegal apartments
  • However, the city just condones it and does not enforce the illegal units
  • Most two to four unit building owners collect rent from illegal basement apartments
  • Home Buyers of two to four unit buildings with illegal basement units will not have any issues with lenders
  • However, rental income derived by the illegal residential basement units cannot be used as qualifying income

Home Buyers are interested in qualifying for multi-unit property financing in please contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. The Gustan Cho Team at USA Mortgage are direct lenders with no mortgage overlays on government and conventional loans.

  • I offer multi-unit property mortgage loans with no mortgage lender overlays
  • DU FINDINGS or LP FINDINGS per the Automated Underwriting System is your official mortgage loan approval

Comments are closed.