In November 2023, Fannie Mae implemented a game-changing reduced down payment requirement of just 5% for two-to-four-unit properties for conventional loans.
This presents a golden opportunity for house hackers looking to purchase or refi a two-to-four-unit property. However, few sources have broken down what this means for investors. Here, I’ll look at this new product, compare it to alternatives, and discuss what this means for real estate investors.
First, we will walk through eligibility, then compare this loan to its FHA alternative and summarize the impact for investors looking to purchase or refinance.
Eligibility
Fannie Mae laid out these new down payment requirements in their desktop originator release notes. It is important to highlight that this change only applies to someone’s “principal residence.” Lenders are strict about owner-occupied requirements, and this product is only for those living in the property they are purchasing.
Thankfully, two-to-four-unit properties can be incredibly easy to house hack, as the units are already separated—meaning you don’t have to share the same living room as your roommates. Additionally, they offer a very easy transition to rent them as an investment property if you move out (after the required time period).
Conventional loans have been an option for a long time, but the down payment requirements were higher. For example, a first-time homebuyer who would have qualified for 3% down on a single-family conventional loan used to be required to bring 15% down to closing for a duplex (or 25% for three to four units), which forced many buyers to opt for the 3.5% down option with FHA.
FHA loans require a minimum down payment of 3.5%. While this has made these loans attractive, the new 5% down payment requirement for conventional now provides investors with additional flexibility. At just 5% down, investors now have the option to choose between FHA and conventional…