How to finance a multifamily property
Purchasing your first home is always a significant milestone, but what if you could also turn it into an investment opportunity? That’s where multifamily homes come into play. For first-time homebuyers trying to enter the current housing market, understanding how to finance a multifamily home can be the key to securing a place to live while generating rental income to offset mortgage costs.
What is multifamily housing?
Multifamily housing can refer to several different housing options. For our purposes, we refer to the type of multifamily owner-occupied housing eligible for financing using the Fannie Mae 5% down payment program. These properties range from duplexes to triplexes to small 4-unit properties. The primary advantage of a multifamily home is the ability to live in one unit while renting out the others, which provides an additional income stream for the owner.
Owner-occupied multifamily properties have always been a great starting point for homebuyers who want to invest in real estate to build wealth. However, they also come with challenges, such as higher purchase prices and the responsibilities of being a landlord.
Owning a multifamily home can offer several benefits:
Income generation
Rent from other units can help cover your mortgage, making homeownership more affordable.
Tax benefits
You may be eligible for various tax deductions related to property management and maintenance. However, you should consult a tax professional for more information about the tax benefits.
Investment growth
Real estate often appreciates over time, potentially increasing the value of your investment.
How do I finance a multifamily home?
Financing a multifamily home is similar to financing a single-family residence. Here are the basic steps you’ll need to consider:
1. Assess your financial situation
Before you begin the financing process, examine your finances closely. Ensure you have a good credit score, a stable income, and enough savings for a down payment and closing costs. You may also need to show six months of reserve payments to qualify.
2. Get pre-approved
Pre-approval gives you a clear idea of how much you can borrow and shows sellers that you are a serious buyer. Get pre-approved today!
3. Choose the right loan
Several types of loans are available for financing multifamily homes, including conventional, FHA, and VA loans. Each has unique requirements and benefits, so choosing one that fits your needs is essential.
4. Consider Fannie Mae’s 5% Down Multifamily Home Loan
One attractive option for first-time homebuyers is Fannie Mae’s 5% down multifamily home loan. This program allows you to purchase a multifamily property with as little as a 5% down payment, making it more accessible for those who might not have a large amount of upfront money to use for the down payment and closing costs.
One of Fannie Mae’s 5% down multifamily home loan’s most celebrated features is its low-down-payment option, compared to the typical 20% for investment properties. This program is an exciting change from the long-time policy requiring 15-25% of the property’s sales price for duplexes, triplexes, and four-plexes. It is a significant benefit for first-time homebuyers and others wanting to purchase an owner-occupied multifamily home. The program can be used for standard purchases, no cash-out refinances, and HomeReady and HomeStyle Renovation loans for owner-occupied transactions.
Financing a multifamily home can be a smart move for first-time homebuyers looking to maximize their investment. You can take the first step towards homeownership and financial growth by understanding the basics of multifamily housing and exploring financing options like Fannie Mae’s 5% down multifamily home loan. Aside from the benefit of increased homeownership, this program also creates more affordable rental options.
Ready to get started? Assess your financial situation, get pre-approved, and choose the loan that best fits your needs. With the proper preparation, your dream of owning a multi-family home can become a reality.
For more tips and advice on home buying, contact a knowledgeable loan officer today!
