Fannie Mae has lowered its down payment requirement for owner-occupied multifamily property loans, effective Nov. 18.
The move has been hailed as a breakthrough for real estate investors—and prospective homeowners—as it makes it significantly easier to buy an investment property with less cash. The decision comes at just the right time, given the current high-interest rate climate that has hit real estate affordability hard.
Borrowers will now need just 5% of the total multifamily home value as a down payment, as opposed to the 15% to 25% required prior to the policy change. The change affects loans on duplexes, triplexes, and fourplexes.
What Are the Requirements for the New Multifamily Home Loan Program?
The most important requirement to be aware of is that this is a loan program based on owner-occupancy. This means that the borrower will have to live at the property and act as a resident landlord.
The major upside of this requirement is that future rental income can be used to qualify for a mortgage loan. While future rental payments alone won’t make you qualify—you must also meet current income requirements and be paying rent where you currently live—they can count toward the total income requirement for the loan.
Even better, Fannie Mae has removed the FHA self-sufficiency test requirement for 3-4-unit property loans. The FHA self-sufficiency test requires 75% of the rental income from 3-4-unit properties to be greater than the monthly mortgage repayment amount. Under the new rule, 3-4-unit properties will not need to meet this threshold. Removing the requirement will make getting pre-approved for a mortgage on a multifamily home easier.
The cap on the 2-4-unit loans under the program has been set at $1,396,800, which significantly expands the pool of properties available to investors to include expensive and more luxurious homes. This is obviously significant for beginning investors in more expensive areas,…