Tuesday, February 28, 2017

Thinking About Purchasing a 2-4 Unit Property? Know Your Loan Options.

Posted by: Mike Dulla, President, United Home Loans


Are you thinking about purchasing a multi-unit investment property? Or, do you plan on living in one of the units and essentially have the other tenants pay your housing expense or most of it, sometimes referred to as house hacking? If you are, you need to understand your loan options. Many buyers forget that conforming loan limits, which are limits established by Fannie Mae and Freddie Mac, are higher for multi-unit properties. Also, FHA and VA limits are higher as well.  

Conforming Loan Limits (Fannie and Freddie) for Greater Chicago Area

Number of UnitsGeneral Loan Limits
One$424,100
Two$543,000
Three $656,350
Four$815,650

 

 

 FHA Loan Limits for Greater Chicago Area    

Number of Units General Loan Limits
One $365,700
Two$468,150
Three$565,900
Four$703,250


 

 

Down Payment Requirements 
Currently, conforming loans have the following minimum down payments for multi-unit properties. These apply whether you are going to purchase the property and live in one of the units or if you plan on purchasing it strictly as an investment property.  

Number of Units Minimum Down Payment
Two15%
Three or Four25%

 

FHA loans are only provided for primary residence purchases. So, if you want to purchase a multi-unit and use an FHA loan to finance it, you must live there. Lenders do check post-closing so keep that in mind. Occupancy misrepresentation is considered fraud and can carry severe criminal penalties, so make sure you move-in, stay for at least one year, and really use it as your primary home.    

Number of Units Minimum Down Payment
 Two, Three or Four 3.5%*

 

 

*Although the stated required minimum down payment is only 3.5%, three and four unit buildings must meet a net self-sufficiency rental income calculation. Basically, 75% of the appraiser’s estimate for rents in the building (including the estimated rent for the owner’s unit if it could be rented out) must meet or exceed the total mortgage payment including taxes and all insurance payments. If not, the down payment must be increased until the transaction meets that requirement.   

If you are interested in purchasing a rental income property, do some research. Look at multi-unit properties online. Do the math. What are the total rents generated by the building? What would the total mortgage payment be including taxes and insurance? What other expenses, such as utilities, would have to be paid by the owner? What vacancy factor should you apply to your rents? If you have questions, United Home Loans is happy to help. Contact us here or at 708-531-8388.

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