Owner-Occupant Multi-Family Mortgage Guidelines On 2 To 4 Units

We will discuss and cover owner-occupant multi-family mortgage guidelines on two to four units. Any property between one to four units is considered residential properties. One of the great benefits in buying a two to four unit multi-family home with an FHA loan is you only need to come up with a 3.5% down payment. This a great opportunity for homebuyers of two to four unit multi-family property to have rental income. HUD, the parent of FHA, requires buyers of multi-family homes need to occupy one of the units as their primary residence.

Building Equity and Reduced or Free Rent For Multi-Family Property Owners

They can rent out the other units and use the rental income to pay their housing payments. There are instances where many owners of two to four-unit properties have their rental income pay for their mortgage and all other housing expenses. Some 2 to 4 unit multi-family owners even have positive cash-flow after paying all housing expenses. Many two to four unit properties are selling really fast as soon as it hits the market. Two to four unit properties are in major demand. Some multi-family unit homebuyers wait months or years for two to four unit properties to hit the real estate market. 

Can I Qualify With No Landlord Experience?

Any multi-family unit property with less than four units is considered residential homes and is eligible for FHA financing.  No rental experience is required to qualify for an owner-occupant two to four unit multi-family building. Homebuyers and first time home buyers can qualify for owner-occupant financing on one to four-unit properties. Government and Conventional Loans has its own Owner-Occupant Multi-Family Mortgage Guidelines. Mortgage Guidelines will dictate the minimum down payment requirements. Mortgage Guidelines will also dictate whether or not borrowers can use potential rental income as qualified income.

Multi-Family Mortgage Guidelines Depends On Loan Program

Most buyers purchase two to four-unit residential buildings as rental properties. However, per Owner-Occupant Multi-Family Mortgage Guidelines, homebuyers can qualify for owner-occupant financing if they live on one of the units as their primary residence:

  • Multi-Family Mortgage Guidelines is dependent on the loan program borrowers chooses
  • There are Multi-Family Mortgage Guidelines and Lender Overlays
  • All lenders need to meet Owner-Occupant Multi-Family Mortgage Guidelines
  • However, it is up to an individual lender to have higher lending requirements
  • These higher mortgage requirements above and beyond Owner-Occupant Multi-Family Mortgage Guidelines is called lender overlays
  • Gustan Cho Associates Mortgage Group has no lender overlays on government and conventional loans

Government Loans are FHA, VA, USDA Loans. Fannie Mae and Freddie Mac Guidelines apply to conventional loans.

Owner-Occupant Multi-Family Mortgage Guidelines On Down Payment Requirements

Down payment requirements on owner occupant financing is much lower than investment properties:

  • HUD, the parent of FHA, requires 3.5% down payment on one to four-unit owner occupant properties
  • All government loans are for owner-occupant financing
  • Per Fannie Mae-Freddie Mac Owner-Occupant Multi-Family Mortgage Guidelines, Conventional Loans require 15% down payment on two-unit properties
  • Fannie Mae-Freddie Mac allows investment property financing on conventional loans
  • Conventional Loans require 25% down payment on investment property 2 to 4 unit financing
  • VA Loans allows 100% financing on one to four-unit owner occupant properties

USDA Loans do not require any down payment like VA Loans. Homebuyers can qualify for USDA on one unit properties only with no down payment. However, borrowers need to meet USDA Mortgage Guidelines and the property needs to be in a USDA designated area. USDA does not allow two to four-unit financing.

HUD Owner-Occupant Multi-Unit Mortgage Guidelines

HUD, the parent of FHA, requires a3.5% down payment on all one to four-unit properties. FHA allows 85% of potential rental income to be used as qualified income on debt to income ratio calculations. FHA loans come with stipulations when it comes to financing for multi-units. Potential rental income is derived by the home appraiser. Two unit properties require one month of reserves. Three to four units will require three months of reserves. One month of reserves is one month of principal, interest, taxes, insurance. It is often referred to as PITI.

Owner-Occupant Multi-Family Guidelines On Conventional Loans

Freddie Mac Home Possible Conventional Loan Programs allow 5% down payment on multi-family property financing.  Freddie Mac Home Possible loan programs program allows as little as 5% for the down payment for 2-4 units with no income restrictions. Freddie Mac requires a 15% down payment on two-unit owner-occupant home purchases. 3 to 4 units require a 20% down payment. 2 to 4 unit non-owner occupant investment properties require a 25% down payment. Freddie Mac allows up to 75% LTV on cash-out refinance on owner occupant properties. Investment properties cash-out Freddie Guidelines allow up to 70% loan-to-value.

Down Payment Requirement On Conforming Loans

Fannie Mae's primary owner-occupant multi-family mortgage guidelines require a 15% down payment on two to four unit multi-family homes.

Fannie Mae’s primary owner-occupant multi-family mortgage guidelines require a 15% down payment on two to four unit multi-family homes. For those who want to put less down, it is best to see if they qualify for an FHA loan with 3.5% down payment. 3 to 4 units require a 25% down payment. Investment properties require a 25% down payment on 2 to 4 units. Fannie Mae owner-occupant multi-family mortgage guidelines on cash-out refinance on 2 to 4 unit homes allow up to 75% LTV. 2 to 4 unit investment properties allows up to 70% LTV. Homebuyers can purchase two to four-unit multi-family homes with no money down and 100% financing with VA loans. 

Choosing A Lender With No Overlays

Borrowers who need to qualify for owner-occupant multi-family mortgage loans with a national mortgage company licensed in multiple-states with no lender overlays on 2 to 4 units can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays on government and conventional loans. Gustan Cho Associates also offer non-QM, mortgage one day out of bankruptcy, bank statement loans, asset-depletion mortgages, P and L stated income loans, and alternative financing mortgage programs. We are proud to have a national reputation of being a one-stop lending shop for owner-occupant homes, second homes, investment properties, and commercial loans. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

Multi-Family Residential Property Mortgage Loans

HUD allows 2 to 4 Unit Multi-Family Residential Property Mortgage Loans with 3.5% down. However, it only applies to owner-occupant multi-family residential property. It cannot be second homes or investment properties. Homebuyers can purchase 2 to 4 unit multi-family residential property with FHA loans. HUD allows owner-occupant home buyers to purchase 2 to 4 Unit Multi-Family Residential Property Mortgage Loans Illinois with 3.5% down payment. One of the units needs to be the primary home of the multi-family property owner. The remainder residential units can be rented out. In the following paragraphs, we will discuss and cover the guidelines on 2 to 4 unit multi-family homes.

What Classifies Multi-Family Residential Property Under HUD Guidelines

Any residential multi-family residential property under HUD Guidelines is a two to four unit property that is zoned residential with no commercial space. If a property has commercial space, it is classified as mix-use and it would not be eligible for FHA loans.

Owner-Occupant Multi-Family Mortgage Guidelines: FAQ On Multi-Family Homes

FAQ on 2 To 4 Unit Mortgage Loans:

  • A common question I get asked by multi-family residential property home buyers is if they need to be full-time occupants of the property
  • The answer to that question is a definite yes
  • HUD requires that the owner need to occupy the 2 to 4 unit property for at least a year

After one year, the owner of the multi-family property can qualify for another owner occupant Conventional loan. But cannot be a multi-family residential home. A multi-family residential homeowner can qualify for another owner-occupant home in one year. But needs to be a single-family home. A single-family homeowner cannot qualify for a multi-family residential property as a primary residence. The mission of HUD, the parent of FHA, is to make housing affordable to all Americans with less than perfect credit, higher debt to income ratios, and low down payments. They are only available to owner-occupied residential units and not second homes or investment properties. Homebuyers who are intending on purchasing 2 to 4 unit multi-family residential homes and do not intend on living there and renting out all of the four units would not qualify for the FHA multifamily Loans.

Owner-Occupant Multi-Family Mortgage Guidelines: Can Rental Income Be Used On Proposed Multi-Family 2-4 Unit Homes

Can Rental Income Be Used On Proposed Multi-Family 2-4 Unit Homes

The great news for two to four unit home buyers is that they can live in one of the units and rent out the remaining units. HUD allows 85% of the potential rental income on the rental units to be used as qualified income when lenders calculate borrowers’ debt to income ratios. The potential rental income figure is provided by the home appraiser. Home buyers of multi-unit properties who intend on living in one of the apartments and renting the other units out for at least a year. If homeowners intend to vacate the property and convert all of them as rental units, it is allowed.

HUD Occupancy Requirements On Owner-Occupant Multi-Family Mortgage Guidelines

HUD requires for owners of multi-unit properties to live in one of the units for at least a one-year period. Circumstances change and HUD realizes that and if the property vacates the multi-unit prior to the one year, that will be fine. The four-unit multi-family homeowner might decide to move out of the multi-family residential property due to needing more space. If that is the case, they can qualify for another owner-occupant conventional mortgage. Borrowers will not be in violation of conditions of HUD if they need to move out of their multi-family residential property after they purchase due to them needing more space due to having a new baby on the way or other extenuating circumstances.

FHA Down Payment Requirements On Multi-Family Homes

Buying a multi-family home with only 3.5% down is a great way of being a homeowner and a property investor at the same time. The rental units in multi-family homes can be used to qualify for an income. For FHA loans, 85% of the market rents can be used for debt to income ratios income. For conventional loans, 75% of the potential rental income can be used to qualify as income towards the debt to income ratios. For conventional loans, a 15% down payment is required for an owner occupant two to four-unit multi-family loans. Borrowers of 2 to 4 unit multi-family properties require reserves of principal, interest, taxes, and income. Buyers of multi-family homes can contact us at 262-716-8151 or text us for a faster response. Or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.

One comment

Leave a comment