Multi-Family Mortgage Loan Requirements | Down Payment Options
Multi-family mortgage loan requirements depend on the mortgage company and agency guidelines. Finding the right multi-family rates and multi-family mortgage company can be a difficult task.
The problem is multi-family property guidelines vary depending on guidelines and lenders. Understanding the requirements will save time and effort.
Multi-Family Mortgage Down Payment
The biggest factors that determine down payment options for multi-family property is credit, capacity, collateral, and occupancy type. You may get better terms when it comes to meeting traditional multi-family mortgage loan requirements.
The biggest factor on down payment options is occupancy type. Occupancy type can be broken down into:
- Investment multi-family property.
- Primary residence/owner occupied.
- Secondary residence.
Debt-to-Income
Traditional mortgages require full documentation of income and debt-to income ratios. You can use future rental income to qualify. Non-traditional mortgages have debt-service coverage qualifying factors of the property and do not account for personal debt-to-income ratios.
Traditional Multi-Family Mortgages
Primary occupancy requires lower down payment options than the others.
- FHA multi-unit mortgages require as little as 3.5% and borrowers can apply for a home grant.
Conventional multi-family mortgages depend on the number of units and loan program.
- As little down payment as 5% for 2 to 4 units for a primary residence.
- 25% down for investment 2 to 4 unit properties.
2 to 4 Unit FHA Multi-Family Mortgages
FHA loans come with stipulations when it comes to financing for multi-units. Cases depend on the Automated Underwriting System (AUS), which is run during the pre-approval process.
3 to 4 unit require the property to pass the self sufficiency test:
- All units, including the one being occupied, is multiplied by the greater of the appraiser’s estimate of vacancies or 75%.
- The total mortgage payment (PITI) is than divided by the monthly net-self sufficiency income, which cannot exceed 100%.
- The rental income can be used when verified by the mortgagee.
A minimum of three months mortgage payment (PITI) must be available and documented for reserves.
FHA Accessory Dwelling Unit
Accessory dwelling units can be financed and still be considered a one unit property. When the case is the property is two or more units, the accessory dwelling unit must be considered an additional unit. These types of properties must conform to the area and comply with local zoning.
2 to 4 Unit Conventional Mortgage Options
For primary residences, Freddie Mac’s Home Possible program allows as little as 5% for the down payment for 2 to 4 units.
- There are income restrictions on this loan program.
Multi-Family Mortgage Investment Options
The two big Government-Sponsered Enterprises (GSE) are Fannie Mae and Freddie Mac. They set standards on maximum loan-to-values, but some lenders do not follow all of their guidelines.
Fannie Mae’s Maximum Loan-to-Values
Purchase:
- 2 to 4 units primary residence requires a 5% down payment.
- 2 to 4 unit investment properties require a minimum down payment of 25%.
Cash out refinance:
- 2 to 4 unit primary – can cash out up to 75% loan-to-value.
- 2 to 4 unit investment – can cash out up to 70% loan-to-value.
Freddie Mac’s Maximum Loan-to-Value
Purchase:
- 2 to 4 unit primary residence – 5% down payment.
- 2 to 4 unit investment – 25% down down payment.
Cash out refinance:
- 2 to 4 unit primary – can cash out up to 75% loan-to-value.
- 2 to 4 unit investment – can cash out up to 70% loan-to-value.
Non-traditional Multi-Family Mortgage Loan Requirements
Some loan programs loan-to-values go higher than traditional loans, but often depend on the debt-service ratio. These loans are financed and available through wholesale portfolio lending or Non-QM loans.
- They have a more common sense approach to underwriting and every borrower’s case scenario is unique.
- Underwriters will determine eligibility based on the ability to repay.
Multi-Family Rates
Multi-family rates vary depending on the lender. Nationwide mortgage rates change throughout the day.
In order to go over live pricing, a borrower should reach out to a licensed Loan Originator.
- Live pricing is determined by the pricing adjustments.
- Early locks are made available when proper disclosures are signed.
Rates are final when an interest rate is locked and the loan funds.
Investment Property Loan with No Debt-to-income
The debt-service coverage ratio mortgage is for a purchase, rate and term, or cash out refinance that does require personal income. The property qualifies based on property cash flow. There are no ratio loans also that do no even require the cash flow of the property.