Multifamily homes: Your house will pay for itself

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When considering multi-family housing, there are many factors you should consider.

• A 2-4 unit property may be more difficult to obtain a residential mortgage due to the rental income. Additionally, the rental income from your 2-4 unit property also could cover or reduce your mortgage, and you’ll build home equity.
• Many lenders require applicants with property management experience to prove they have sufficient savings for several months of mortgage payments.
• Any property with one to four units is considered a primary residence by mortgage lenders, as long as the owner intends to live there. You can apply for government loans that require you to live in the property.

How Multi Family homes deliver great value

Two factors dominate today’s real estate market: shortages of available properties and the growing need for rentals. If that’s your situation, leverage it. Take advantage of competition for housing and consider multifamily homes when buying your Principal residence.

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The benefits

Doing this has multiple benefits. Based on the rental income, it might be easier to get a residential mortgage at a higher rate for a property of 2-4 units. Combining the right loan and the right property will allow you to get the best deal. As little as 3.5 percent down. You can get credit, even with a low credit score.

You could also reduce or cover your mortgage with rental income from your 2-4-unit property. you’ll build home equity.

Moreover, you’ll have access to larger mortgage loan limits. These multi-unit buildings have loan limits that are higher than single-family homes.

The negatives

You know some of the benefits of multifamily housing,  but you’ll want to carefully consider drawbacks. When this is your primary residence, you’re living in close proximity to your tenants. You’ll get to know each other intimately since there’s less privacy than a single family home.

You’re also sharing common spaces like any yards, decks, pools, parking and, perhaps, storage areas.

Tenants are your primary client and see renting as an investment. They make demands. For example, if a unit requires a repair, tenants will knock on your door—at midnight if necessary.

The cost

Your monthly costs — utilities, property taxes, mortgage payments and maintenance — are likely to be higher than those of a small single-family home.

In addition, you’ll want to set aside money to replace items as they wear out. You might be able to put off replacing your own dishwasher for a month or two, but not your tenants’.

And what happens when you have a vacancy or two? Your expenses go on. Even if your unit is empty.

Many lenders ask applicants to show property management experience and to prove they have sufficient savings to pay several months’ worth of mortgage payments.

You should consider where to buy your multi-family home.

It is important to research markets thoroughly. Buy somewhere you’ll want to stay long-term, because the cost of buying, moving and selling takes a large bite out of your potential profit.

The tenants you’ll attract depends on the quality of the neighborhood, so look at school ranking and crime rates.

It’s easy Online research Rents, vacant properties and future development. Evaluate neighborhood stability so you’re sure you maintain ample rental revenue.

Take a look at the local job market and amenities. Find a building that will make it easier to commute to school and work. You should thoroughly research the market before you purchase the right property.

How can you finance multiple family homes?

All mortgage lenders will consider one-to-four unit property. As long as you plan to live in the unit, as your primary residence is allowed. You can apply for loans from the government that require you to live in your home.

A CAIVRS check is required to ensure that you aren’t on any list of people who defaulted on loans such as student loans and back taxes.

To qualify for a mortgage, most lenders require you to have some previous landlord experience or property management experience. You’ll also probably need to prove that you have cash reserves to cover your payments if your units go unrented for six months.

FHA, VA

FHA programs let you buy as little as 3.5% dows as long as your credit score does not exceed 580. Between 500 and 579, you’ll need ten percent down.

VA allows 100 percent financing. It allows for up to four units. However, VA also has special guidelines for loans in which two or more VA-eligible veterans, all using their eligibility, can purchase multifamily property.

Under these rules, they can buy four family units (a four-plex, for instance), and one business unit, plus one additional unit for each veteran participating in the ownership (that’s six residential units plus an office for two vets).

Conventional (non-government) mortgages

Conforming lenders (Fannie Mae and Freddie Mac) require higher down payments — 15 percent for a duplex and 25 percent for three-to-four unit properties, if applicants choose fixed-rate loans.

Others programs are focused on residential rental lending. They may approve you loan based upon the income-producing property.

You don’t even have to live in the property under some programs. Your credit rating and your personal income are less important in this case.

The property must generate enough income to cover its costs. Your lender will require this. Special legal entities. You must ensure that the mortgage payment is made from your rents.

What are today’s mortgage rates?

Multifamily properties may have mortgage rates that are slightly higher than single-family homes. That’s because these homes are also income property, and this can add risk to the lender.

It is possible to get a house for less if you have tenants who help pay your mortgage.

Verify your new mortgage refinance rates now!

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