5% Down Conventional Mortgages For 2-4 Unit Buildings

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row of 3-unit buidlings with mortgage on them, no doubt

Those were not always a great option.  Some people had nothing to do with the military and the FHA charges and monthly mortgage insurance premiums (the latter cannot be removed if the term is over 15 years).

Not to mention that for 3 and 4-unit properties, 75% of rents had to cover the housing costs (self-sufficiency rule).

Not to mention that you had to live in one of the units, no investing allowed.

Low Down Payment Conventional Loans for 2-4 Unit Buildings

Freddie Mac has changed its rules to allow borrowers to purchase 2-4 unit buildings with as little as 5% down.  Rate-in-term refinancing of such properties can also be done with LTV’s of 95%.

This is done under HomePossible, so borrowers have to meet all of that program requirements.  One of them is credit scores must be 700 or higher for 2-4 unit properties.

HomePossible vs FHA for 2-4 Unit Buildings

HomePossible FHA
5% down payment 3.5% down payment
no upfront mortgage insurance upfront mortgage insurance
monthly insurance can be removed once there’s 20% equity on all types of loans monthly insurance can be removed only on loans with terms of 15 years or less
no self-sufficiency rule 3-4 unit buildings: 75% of the market rents or actual rents (whichever is lower) from all units must cover principal, interest, property insurance premiums and property taxes)
FICO scores must be 700 FICO scores can be a lot less than 700 (in theory as low as 500… In theory only because, in practice, the interest rate would be so high it would not make sense or the loan would not meet State and County limits.

 

So, if you have good credit scores, you have more options.  If you have low credit scores, FHA is still the way to go. Unless you qualify for a VA loan.  That’s can be even better as no down payment is required.  Yup, 100% LTV.