2 To 4 Unit Mortgage Loans Mortgage Guidelines And Requirements

ByGustan Cho
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This ARTICLE On Qualification Requirements On 2 To 4 Unit Mortgage Loans Was Updated And PUBLISHED On May 15th, 2020

Multi-family that consists of 2 to 4 units are considered residential properties.

  • Home buyers can qualify for an owner occupied primary residence mortgage loan with a two to four unit property
  • Qualifying for 2 to 4 unit mortgage loans is somewhat similar to qualifying for a one unit single family home
  • There are more qualifying factors, especially with qualifying for a 2 to 4 unit mortgage loans via the conventional mortgage route
  • One of the main factors that come into play in qualifying for 2 to 4 unit mortgage loans is whether the subject multi family property will be owner occupied or not

In this article, we will discuss and cover 2 To 4 Unit Mortgage Guidelines And Requirements.

Qualifying For A 2 To 4 Unit Financing As An Owner Occupied Or Investor

FHA, VA, and Conventional mortgage loan programs all offer for 2 to 4 unit mortgage loans to borrowers who are seeking owner occupied primary residence mortgage loans.

  • If you are seeking an investment 2 to 4 unit multi-family loans, then the only option you have is via the conventional mortgage loan route
  • Government loan programs (FHA, VA, USDA) only offer owner occupant home purchases
  • If the multi unit primary residence home buyer like to capitalize where he or she does not have to come up with a large down payment, the best mortgage program to choose is a FHA loan
  • FHA Loans only require 3.5% down payment on multi-family homes
  • For conventional owner occupied 2 to 4 unit mortgage, the minimum down payment required is 15%
  • For investment 2 to 4 unit mortgage, the minimum down payment required is 25%
  • Mortgage rates on two to four unit properties are higher than single family units
  • Mortgage Rates On Investment Property

Interest Rates On 2 To 4 Unit Mortgages

Investment 2 to 4 unit financing have higher mortgage lending criteria due to the higher risk factor.

Investment 2 to 4 unit lenders normally require the borrower to have the following:

  • higher credit scores
  • reserves
  • lower debt to income ratios than owner occupied borrowers

Can Rental Income Be Used To Qualify For A 2 To 4 Unit Mortgages

Generally, it is possible to use rental income to be used to qualify for a 2 to 4 unit mortgage loan but in order to use rental income, a rental lease has to be in effect and only 85% of the monthly rental income is used on FHA Loans and 75% of the rental income is used on Conventional Loans.

  • Many lenders will not allow rental income to be used if the borrower does not have experience in property management
  • Lenders may require that they have landlord experience for at least a year
  • With FHA, this is not a requirement by HUD but rather a lender overlay by the individual lender
  • Gustan Cho Associates does not have any lender overlays on FHA and Conventional Loans
  • Other lenders will allow borrowers with no rental experience to use 75% of the current rental income on the units that have rental leases
  • Reserves Required For 3 To 4 Unit Properties
  • FHA may require reserves for borrowers who are purchasing 3 or 4 unit properties and no reserve requirements for 2 units

Fannie Mae and/or Freddie Mac will require that no potential rental income be used if the 2 to 4 unit is currently vacant with no tenants.

Qualification Requirements

To qualify for a 2 to 4 unit mortgage loan via FHA, the mortgage loan borrower needs to just meet the FHA guidelines and get an approved eligible via Fannie Mae’s Automated Underwriting System.

  • There really is no big difference than applying for a single family FHA loan except that HUD does not allow non-occupied co-borrowers on multi family properties

FHA allows the down payment to be gifted by a family member whereas gift funds are not allowed for conventional 2 to 4 unit mortgage loans.

Mortgage Loan Limits

FHA Loan Limits For 2 to 4 Unit Properties are higher than single family homes but vary depending on the specific county and state the multi family property is located at.  Home buyers who are interested in getting qualified for a multi unit property mortgage or have any questions, please contact Gustan Cho Associates at 800-900-8569 or text for a faster response. Or email us at gcho@gustancho.com.

Gustan Cho Associates has no overlays on FHA, VA, USDA, and Conventional Loans. We are available 7 days a week, evenings, weekends, and holidays.

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