A Mortgage Designed for Owner-Occupant Landlords
I’ve been promoting the concept of owner-occupied landlords for years. Well, I’m not the only one who believes in the concept - Uncle Sam does as well and offers some remarkable financing to support it.
Effective November 2023, Fannie Mae (the Federal National Mortgage Association) allows for just 5% down for conventional mortgages on a 2-4 family property when the buyer will be occupying one of the units. This is a significant improvement over traditional multi-family mortgages which typically required 20-25% down.
Additionally, the rental income for the non-owner-occupied units can be added to the buyers income to help meet the necessary ratios. On a three family property, the rental income from two tenants can be added to your income to help qualify for the loan.
What this means to you: it is now possible to buy a multi-family home for a smaller downpayment than ever before. It’s a major step that will allow access to conventional loans for many people, including first-time homebuyers as well as senior citizens.
Some conditions apply:
The property must be your primary residence. This particular program cannot be used for investment or second homes.
Rental income from the other units in the building can be used to qualify for the loan. Example: Your income may be $4,000 a month and you need qualifying income of $5,500 a month for the mortgage. Adding in the rental income from the tenants in the building may help you get to the number you need.
The lot must be zoned for multi-family.
An ADU on the property may be acceptable.
Must be two to four units. (Five or more units are a different class of mortgage and do not qualify).
With only 5% down you are going to need PMI (private mortgage insurance.). The cost of PMI is in part determined by your credit score, so cleaning up your credit and getting your score as high as possible is going to make a difference.
For more information talk to several local mortgage people. The maximum amount of mortgage may vary by location but is approximately $1.4 million. I recommend talking to your bank mortgage officer as well as a couple of local mortgage brokers to see who can get you the best deal.