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.
“Baret Grigorian was amazing!! From start to finish Baret was there to help in every way. I never felt like I had to call him to follow up on my loan transaction and he always kept me informed. He was able to get me great financing rates, a lower payment AND money back! Thank you Baret!! I look forward to working with you again in the future!!”
- Kenny D.
“With this being my first home purchase, my loan officer was very good at explaining everything to me and helping me with all my needs. Thank you for having such great people in the right place!”
- Cathleen H.
“These folks are conscience and easy to work with. The “calm” as the “storm” of home loans rolls through! I would not use anyone else. They make sure ALL your questions are answered, be that what competitors may have offered, or ads you may have heard or seen. What a pleasure to do business with. Thank you team CSMC.”
- Michael G.
“David Honda and his team rocked!! They had great technology that took so much of the pain of home buying away. They were attentive to our specific needs and were on top of our loan process! David was always available, even when he was in Hawaii, and super responsive! Thanks David, Melissa and the team for an easy and great home buying experience.”
- Raymond F.
“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.
“CSMC Mortgage took great care of us and our home buying needs. Tony was more than we could have ever asked for, he went above and beyond for us and we couldn’t have been more grateful for all his hard work. CSMC Mortgage has a great and friendly staff, I would highly recommend them to anyone looking into buying a home.”
- Jannet A.
“I had the best experience with CSMC Mortgage. Buying a home is very stressful with all of the paperwork that has to be filled out. Faye was amazing! I have given several people her contact info, who are scared to take the step to homeownership. She took ALL of the stress away for me. I honestly, didn’t have to do much. She accommodated my crazy work schedule and help me get things done in a timely manner. She made me feel so comfortable and at ease. There were no surprises when it was time to sign and pay. I highly recommend her to anyone in need of her services and guidance. I can’t thank her enough.”
- Lisa M.
“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.