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Must-Have Information for Multiunit Financing

Owning multiunit properties is one of the best ways to increase your income and create a strong foundation for your financial future.

These units can be expensive, which makes ownership difficult for many people. Fortunately, there are plenty of options for multiunit financing, allowing you to build a strong portfolio without a significant initial investment.

Multiunit Financing: Finding the Right Options for Your Needs

Standard Fannie Mae and Freddie Mac Loans

Both Fannie Mae and Freddie Mac support the purchase of investment properties through a variety of multiunit financing options, including loans for owner-occupied properties. For owner-occupied two-unit properties, you can get financing of up to 85% of the property, while three- or four-unit properties can be purchased with 75% financing through these programs. If you are seeking an investment property, you can also get up to 75% financing, which is available for two-unit, three-unit, four-unit properties.

Fannie Mae and Freddie Mac place limits on their loans, but these are usually large enough to purchase high-quality property. For example, a two-unit property can have up to $831,800 in financing in San Diego, while three-units can bring loans over $1 million. If you are looking at a four-unit property, you can get financing of $1,249,550 in San Diego.

Freddie Mac Home Possible Program

Freddie Mac also offers a program called Home Possible. This program was actually released in January 2018, and it offers some of the lowest down-payment requirements possible with low interest rates. Many buyers who are looking to accumulate investment properties are using this program. They simply purchase a duplex and live in the property for 12 months, then convert the property into a complete rental. They are then able to purchase another as an owner-occupier.

There are income limits of $111,000 for certain properties, but you’ll find a surprising number of areas that do not have these limits. Home Possible offers up to 95% financing but does require a 3% minimum borrower contribution, as well as two to four month of reserve cash. The loan limits are based on conforming loan limits, not conforming high-balance loan limits. This means the limits are $580,150 (two-units), $701,250 (three), and $871,450 (four).

Multiunit financing can be used to purchase duplexes and other investment properties.

FHA Loans

As one of the largest federal organizations involved in the real-estate market, the FHA supports loans by providing insurance, which is beneficial for both lenders and borrowers. For multiunit properties, you can find financing up to 96.5% of the property value, which means you only need to generate the remaining 3.5%. For limits, you can purchase a two-unit property with a loan up to $831,800 or a three-unit property with a loan as large as $1,005,450. Investors seeking a four-unit property can make the purchase with a loan up to $1,249,550.

VA Loans

The Department of Veterans Affairs offers some of the best financing for home loans, so if you are a service veteran or a qualifying family member, you may want to consider this agency for your borrowing needs. The VA offers financing for owner-occupied two- to four-unit properties with up to 100% of the loan limits or 25% of the difference to a maximum loan amount of $1.5 million. The limits in San Diego are $831,800 for two units, $1,005,450 for three, and $1,249,550 for four-unit properties.

Portfolio Loans

Portfolio loans are a unique option that borrowers can use to purchase a multiunit property, and San Diego Purchase Loans is a top source for this option. Currently, this is the only investor we know of that will allow the purchase of two units up to a first loan amount of $1 million with a 10% down payment on the second. Owner-occupied two-unit properties up to a first loan amount of $1.1 million are available, and they have a 10% down-payment structured as a first and second with a HELOC. The max loan amount on this product cannot exceed $1.5 million, but the application of a $1.1 million first mortgage and a $400,000 second would allow someone to purchase a two-unit property worth over $1.6 million with the 10% down payment.

Jumbo Investment Property

If you want to purchase a significantly large property, you should consider using a jumbo loan. With these loan options, interest-only is available, giving you plenty of choices for your properties. Most jumbo investment property loans on two- to -four-unit properties have a limit of 75% loan-to-value, but our product will provide up to 85% loan-to-value for a loan total of $2.5 million. You can also find this option as an interest-only term that will increase your cash flow and limit your total down-payment requirements.

Proudly Offering 15% Down, Interest-Only Loans

One of the options we provide is a 15% down, interest-only fixed-rate loan with a 40-year term. This product is available for up to $2.5 million, making it an extremely unique and popular product. Most lenders will require at least 25% down for their jumbo loans, which limits options for borrowers. This program allows you to purchase more multiunit properties, significantly enhancing your portfolio with a smaller capital investment.

Essentially, the loan does not follow the strict requirements or pricing adjustments set by Fannie Mae and Freddie Mac. The minimum down payment and interest-only requirements offset the higher rate related to the 15% down payment without mortgage insurance. The strategy is to service the debt for about six years, then, after an equity increase, refinance the loan into something more manageable, leaving more money for the purchase of another property.

The goal is to use a minimum down payment to utilize most of your available funds, allowing you to acquire additional property. It’s important that buyers focus on the cash-flow of properties and not the interest rates, as the concept of discount points has its advantages.

If you want more information on our available loan options for multiunit properties, please contact us today. We would love to show you all the details of purchase loans, FHA loan, and jumbo loans for duplexes and multiunit properties.

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Chad Baker, CrossCountry Mortgage   
NMLS# 329451 | CCM NMLS# 3029