First, let’s define what a multi-family home is. It’s multiple living units (as few as two) with separate entrances and exclusive living areas. Duplexes, triplexes, and fourplexes all fit this definition. (Properties with five or more units are considered commercial real estate, but properties with four or fewer are considered residential when it comes to financing.)
If you’re buying an entire unit as an investment property, you don’t have nearly as many options as you do if the unit is partially occupied by the owner.
If it’s strictly an investment, you don’t have access to government-guaranteed loans like FHA and VA loans, which can make it easier for you to buy a multi-family property.
Additionally, you’ll need a higher down payment and will pay higher interest rates. For the remainder of this article, I’ll be talking about multi-unit loans where the owner is occupying one unit.
If you’re considering getting a mortgage to pay for a multi-family property, you may be wondering what benefits you’ll enjoy thanks to your investment. Here are a few of the best reasons to buy a multi-family property.
It depends on the loan program, but you’ll usually have to put more down for a multi-unit mortgage that you’d have to for a single-family home, which can require as little as 3% down.
Typical down payments for multi-unit conventional loans are:
Duplex, 15% of the purchase price
Triplex, 20% of the purchase price
Fourplex, 25% of the purchase price
If you qualify for an FHA or VA loan, you’re in luck with the down payment. FHA loans require just 3.5% down, while VA loans allow for 100% financing.
A side note: Freddie Mac’s Home Possible program does allow you to finance 1- to 4-unit properties with just 5% down, but it does have income limits.
Depending on the loan program, a parent or relative may be able to kickstart your investment by providing a percentage of the down payment funds.
Another plus to getting a multi-family property is that you can get a more expensive property without heading into jumbo loan territory (which comes with higher interest rates). More units equals a higher lending limit.
This primarily depends on how many units are included as part of your multi-family property.
Obviously, you’ll need a higher income to qualify for a bigger loan. That begs the question: can your new rental income be used to help you qualify.
As usual, it depends. Guidelines vary, but typically you’ll need to have some sort of landlord experience under your belt. This shows us that you can consistently collect rent and find good tenants.
Even so, you can usually use only 75% of rental income as qualifying income (to account for maintenance and vacancies), and you’ll usually need to have signed leases in hand.
Wondering if there are any drawbacks you should know about if you’re planning on getting a mortgage for a multi-family property? There are, and they should be considered carefully before you make your investment.
Are you interested in purchasing a multi-family unit? It can be a smart investment strategy that will pay off for years to come. If you have any questions about what a mortgage might look like for you, give me a call! I’m here to help.
“Faye helped me purchase my first home last year. She was very professional and worked very quickly to help me procure financing. She made herself available around my schedule and took the time to explain my options for financing to help me get the lowest rate possible. Would highly recommend her to anyone looking for someone that is professional, highly knowledgeable, polite, and responsive.”
- James Z.
“ My experience is always fantastic & seamless. Mayen Grigorian is a true professional. He’s honest, he goes above and beyond, he’s efficient, always available and knowledgeable. I never have to call for updates he beats me to it and sends updates regarding the loan. Our clients are very happy and we’re very happy! Five star service, I can’t say enough good things about Mayen as a person and a professional. Hands down! He’s The Best!”
- Taline S.
“Mark, Darci & Co were wonderful to work with! They were responsive, managed a complex buying situation with ease, incredibly communicative and always ensured I was caught up with what was going on and where I was in the process. Heavily recommend!”
- Zach J.
“Laura Hertz is the best lender I've ever worked with in my 25 years as a Realtor. I never have to worry that she has things handles and she always performs in the best way possible. I also know that she is an advocate for my buyers and not only does she meet their expectations but she exceeds them! She is my lender for life!”
- Paula K.
“Darci, Mark and their team of professionals made the purchase for our amazing buyers absolutely seamless. The level of service they provide is second to none! They delivered the best rate and the best terms for the clients. Mark and Darci are very transparent with their fees and have a stellar reputation in the community. I highly recommend Darci and Mark for all your mortgage needs!”
- Gabby G.
“CSMC is always our go to lender. Denise Bizzy is fabulous. She really went the extra mile trouble shooting solutions to problems our client had. I do not believe another lender would have been able to pull this off. Five stars for the A+ service from Denise Bizzy and CSMC Mortgage!”
- Mark L.
“This review is about Mark and Darci Richardson from CSMC Mortage in Simi Valley. This team is the BEST! For the past 12 years our home was "underwater" due to the "crash" in 2007, and unable to do anything with the mortgage except pay it. These two kept on top of things and finally the house qualified to REFI. We just completed everything and it closed last week... and they saved us over $900 a month!! That's a huge savings for a couple of senior citizens! We are SO happy now and finally can breathe. Thanks to Mark and Darci and CSMC Mortgage for following through, jumping through all the hoops necessary and helping us out! I can't recommend them more... they are the BEST!!!”
- Shari S.
“ Mario provided excellent service. Not only was he professional and helpful, but the personal support and reliability was something hard to find these days. I will not be using anyone else and have confidently referred him to friends and family.”
- Heather C.