Can I put 5% down payment and buy a multi-family house?
Short Answer:
Yes, you can put 5% down or less and buy a multi-family house using specific loan programs like FHA loans (3.5% down), conventional loans (5% down), or VA loans (0% down for eligible veterans). These options require you to live in one of the units and meet certain credit and income criteria.
Longer Answer:
Investing in a multi-family house can be a smart way to build wealth and generate rental income. One of the most common questions prospective buyers have is whether they can purchase such a property with limited down payment (ie less than 20% down). The good news is that it is possible, but it depends on the type of loan you choose and your financial situation. Here’s a detailed look at your options.
Understanding Multi-Family Properties
Multi-family properties, also known as multi-unit properties, include duplexes (2 unit), triplexes (3 unit), and fourplexes (4 unit). These properties consist of two to four separate living units within one building. They offer the unique advantage of allowing you to live in one unit while renting out the others, providing a steady stream of rental income.
Financing Options for Low Down Payments
- FHA Loans
- Down Payment: As low as 3.5%
- Requirements: The Federal Housing Administration (FHA) offers loans with a down payment as low as 3.5% for owner-occupied multi-family properties. This means you must live in one of the units as your primary residence. FHA loans also require mortgage insurance premiums, which can increase your monthly payments.
- Pros: Lower down payment, easier qualification criteria.
- Cons: Mortgage insurance premiums (upfront and monthly), property must meet FHA standards and for 3 to 4 units a self sufficiency test.
- Conventional Loans
- Down Payment: As low as 5%
- Requirements: Some conventional loan programs allow for a 5% down payment on multi-family properties, especially if you plan to live in one of the units.
- Pros: No upfront mortgage insurance, mortgage insurance can disappear
- Cons: Stricter qualification criteria, higher credit score requirements, and possible income requirements
- VA Loans
- Down Payment: 0%
- Requirements: If you’re a veteran or active-duty service member, you may qualify for a VA loan, which offers 0% down payment options for owner-occupied multi-family properties. VA loans do not require private mortgage insurance (PMI), making them an excellent option for eligible buyers.
- Pros: No down payment, no PMI, competitive interest rates.
- Cons: Must meet VA eligibility requirements, funding fee may apply.
Managing Your Investment
Screen Tenants Carefully
- Conduct thorough background checks and verify references to ensure you’re renting to reliable tenants who will pay rent on time and take care of the property.
Maintain the Property
- Regular maintenance and prompt repairs are essential to keep your property in good condition and retain its value. Consider setting aside a portion of your rental income for maintenance costs.
Keep Accurate Records
Maintain detailed records of all income and expenses related to the property. This will help you manage your finances and simplify tax reporting.
Understand the Local Rental Laws
Each city, county and state has different landlord and tenant laws. These laws can include responsibilities of the landlord, tenant protections and minimum standards of the property.
Conclusion
Yes, you can put 5% down or less and buy a multi-family house, but it requires careful planning and the right financing option. FHA loans, conventional loans, and VA loans all offer pathways to purchasing a multi-family property with a low down payment. In addition, buying a multi-family home requires a review of local landlord/tenant laws to ensure compliance with the law.
If you are interested in buying a multi-family home, please reach out at teamjd@mainstreethl.com
These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.
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