Buying 1-4 Units Property? Learn about Multifamily Homes Mortgage Interest Rates.
Usually, we think of mortgages in terms of single family homes, but they can be obtained by buyers of duplexes and other multi-family dwellings. Home mortgage rates will depend largely on whether the buyer is buying the property strictly as an investment, or whether he or she actually intends to live in one of the units. Mortgage interest rates will be higher if the property is bought strictly for investment purposes. There are, however, considerations other than mortgage interest rates when seeking a mortgage for a multi-family dwelling. Rather than obsessing on home mortgage rates, you should consider the type of loan available to you.
An owner/occupant can benefit from an FHA or VA loan, or from conventional financing, but those who are buying the property for investment purposes will be limited to a conventional mortgage.
Buying a multi-family home makes perfect sense – you live in one unit, and rent out the other (or two or three) to help pay down your mortgage. For owner/occupants, FHA loans are ideal, because they require a down payment of only 3.5%. Investors, on the other hand, may need a down payment of anywhere from 25-30%.
Additionally, investors will require a higher credit score and higher cash reserves if they are to qualify for a multi-family mortgage and the home mortgage rates and up-front fees may be higher. Also, inquire about current interest rates before you move ahead.
Can I Get A Loan Based on Rental Income?
Sometimes, buyers of multi-family homes can provide their lender with rental income information in order to get a loan. Typically, though, the renters have to have already signed a lease, because the potential for rental payments has to be verified. A percentage of the income from the rental is then considered when underwriting the loan. Loan approval won't be given on the basis of a vacant unit. Lenders who provide a market analysis in order to estimate the potential rent need to know that this won't likely be considered.
The higher the vacancy rate, the greater the burden on the person seeking the loan. If you're buying a multi-family unit that has several vacant units, your lender may expect you to provide proof that you can continue to make the mortgage payments even if all those units continue to remain vacant over the long term. Additionally, Freddie Mac and Fannie May expect borrowers to be able to qualify for the mortgage on the whole building, even in a complete absence of renters.
Qualifying for a Mortgage on a Multi-Family Home
If you're buying a multi-family home, you will have to meet the FHA standard guidelines, and the standard guidelines for conventional mortgages. The best mortgage interest rates go to buyers who have credit scores of at least 740, and preferably more. If you're thinking of finding a co-signer, you need to know that unless the co-signer is occupying the property, you will not qualify for a multi-family FHA mortgage.
Additionally, for conventional financing on a multi-family home, your debt-to-income ratio cannot be more than 45%. FHA loan guidelines can be a bit looser, and FHA borrowers are permitted to use gifts from family, friends or employers to finance part of the down payment. Conventional borrowers are required to use some of their own savings.
For conventional loans, the limit is usually $417,000. In counties that have higher housing costs, the loan limit can also be higher. Loan limits increase proportionally with the number of units, and can reach almost $802,000 for counties that don't have a high housing cost add on.
FHA loan limits provide similar additions for high cost areas and extra units. Don't forget to ask about current interest rates.
If you're considering buying a multi-family unit as an investment property, your current interest rates will be lower if you're also considered a home owner who is living in one part of the dwelling. However, the type of loan you receive will do more to determine the viability of your investment.