2 to 9 Unit Mixed-Use Property Financing | Investment & Owner Occupied
There are two categories when it comes to mixed-use property financing – owner occupied and investment. A mixed-use mortgage is made available for multi-unit properties through traditional and non-qualified mortgages. No personal debt-to-income ratios are a factor for the non-qualified mortgage and allow the property to close in an LLC or corporation.
FHA Mixed-Use Property Financing
If you are looking for owner occupied financing for a mixed-use property, FHA allows 1 to 4 unit single family properties. The property can be suitable for a combination of uses such as:
- Commercial.
- Residential.
- Retail.
- Office.
- Or parking space.
There are factors that can make the property more difficult for you to obtain financing than non-traditional financing.
FHA Property Requirements
The two major factors that determine if a property is eligible:
- 51 percent of the entire building square footage must be for residential use; and
- The commercial property cannot affect the safety of the occupants.
FHA 2 to 4 unit financing is a great option if you are looking for owner occupied financing with no greater than 4 units. Other options available for properties that exceed 4 units and do not take personal debt-to-income ratios as a qualifying factor.
Mixed-Use Property – Debt-Service Coverage
For non-traditional financing, the 2 to 9 multi-unit mixed-use property must pass a debt-service ratio of 110%. This is calculated by:
- Adding all units rent to come up with a net operating income.
- Dividing it by the total mortgage payment.
Gross rental income is determined by the lower of what the subject property is leased for or the appraiser’s proposed rental income. The property must also meet conventional appraisal standards for a mixed-use property.
Non-QM Financing Up to 4 Units
In some cases, FHA financing can be difficult to obtain due to property condition. There are reasons why a property may not qualify due to FHA minimum property requirements.
For the Non-QM financing up to 4 units:
- At least 1 unit needs to be commercial.
- But no more than 2.
Properties that are greater than 4 units allow more of the units to be commercial, but there is a minimum loan amount and credit score.
Minimum Loan Amount and Credit Score
For Non-QM mixed-use property financing:
- The minimum loan amount is $200,000, but exceptions can be made.
- The minimum credit score is 620 FICO though FHA allows lower credit scores.
Interest rates are on a case by case scenario and there is no Automated Underwriting System (AUS) when determining the ability to repay.
Mixed-Use Mortgage Program Details
- 30 year and 15 year fixed interest rate options available.
- 5/1 and 7/1 ARMS with interest only features.
- Borrowers can be a citizens or foreigners.
- Properties can close in an LLC or Corporation.
- Minimum down payment is 20%, but depends on credit score.
- Cash out options available up to 75% loan-to-value.
Mixed-Use Property Financing – Seasoning on Derogatory Events
The seasoning on derogatory events must be a minimum of 24 months for:
- Bankruptcy
- Foreclosure.
- Deed in lieu
- Short sale.
Eligibility is determined during the pre-approval process.
Documents Required for the Pre-approval Process
A list of general documents varies depending on your case scenario. A Loan Originator can put together a list of documents during the pre-approval process, but the basic required documents are:
- 401k and investment accounts.
- Copy of photo ID.
- Debt-service coverage calculator filled out by a Loan Originator.
- If applicable, LLC or Corporation documents.
- Two months bank statements
Non-QM loans take a more common sense approach to underwriting for a mixed-use property. Approval is determined on bases on reasonable belief that the ability to repay has been met.