Fannie Mae Rolls Out 5% Down Payment Program for Multifamily Properties—Here’s What You Need to Know

Key Takeaways:

– Fannie Mae has lowered its down payment requirement for owner-occupied multifamily property loans
– Borrowers now only need a 5% down payment, compared to the previous requirement of 15-25%
– The change applies to loans on duplexes, triplexes, and fourplexes
– The program is based on owner-occupancy, meaning the borrower must live at the property and act as a resident landlord
– Future rental income can be used to qualify for a mortgage loan
– Fannie Mae has removed the FHA self-sufficiency test requirement for 3-4-unit property loans
– The cap on 2-4 unit loans under the program is $1,396,800
– HomeReady loans for low-income borrowers and HomeStyle Renovation loans also qualify under the policy change
– High-balance loans and manually underwritten loans are excluded from the policy change
– The program has been praised as a “golden opportunity” for prospective homeowners and investors
– Becoming an owner-landlord can reduce administrative burdens for first-time investors
– The downside is that the investor will have to live alongside tenants and may have less rental income to cover their own mortgage
– Applications for the new Fannie Mae loan can be submitted now, but some details are still being finalized.

BiggerPockets:

Fannie Mae has lowered its down payment requirement for owner-occupied multifamily property loans, effective Nov. 18. 

The move has been hailed as a breakthrough for real estate investors—and prospective homeowners—as it makes it significantly easier to buy an investment property with less cash. The decision comes at just the right time, given the current high-interest rate climate that has hit real estate affordability hard.

Borrowers will now need just 5% of the total multifamily home value as a down payment, as opposed to the 15% to 25% required prior to the policy change. The change affects loans on duplexes, triplexes, and fourplexes. 

What Are the Requirements for the New Multifamily Home Loan Program?

The most important requirement to be aware of is that this is a loan program based on owner-occupancy. This means that the borrower will have to live at the property and act as a resident landlord

The major upside of this requirement is that future rental income can be used to qualify for a mortgage loan. While future rental payments alone won’t make you qualify—you must also meet current income requirements and be paying rent where you currently live—they can count toward the total income requirement for the loan. 

Even better, Fannie Mae has removed the FHA self-sufficiency test requirement for 3-4-unit property loans. The FHA self-sufficiency test requires 75% of the rental income from 3-4-unit properties to be greater than the monthly mortgage repayment amount. Under the new rule, 3-4-unit properties will not need to meet this threshold. Removing the requirement will make getting pre-approved for a mortgage on a multifamily home easier.

The cap on the 2-4-unit loans under the program has been set at $1,396,800, which significantly expands the pool of properties available to investors to include expensive and more luxurious homes. This is obviously significant for beginning investors in more expensive areas, where they previously would have been priced out of the multifamily unit market.

HomeReady loans for low-income borrowers and HomeStyle Renovation loans also qualify under the policy change, which is great news for those real estate investors interested in house flipping or the BRRRR method

With the HomeStyle Renovation loan, the total loan amount factors in the costs of the proposed renovations. The HomeReady and HomeStyle options exclude high-LTV refinancing and manufactured housing. Renovator-investors will once again need to remember the owner-occupancy requirement.

Prospective borrowers also need to be aware that high-balance loans and manually underwritten loans are excluded from the policy change.

Benefits of the Program

The new program rollout has been praised as progressive and timely by mortgage professionals. When speaking to National Mortgage Professional, Donielle Geiser, chief operations officer of Thrive Mortgage, called the lowered down payment requirement a ‘‘golden opportunity’’ for prospective homeowners and budding investors ‘‘looking to engage in a smart way of not only building equity but also adding an additional revenue stream. One of the surest ways to build wealth over time is to offset a liability with an income-producing asset.’’  

Becoming an owner-landlord also reduces some of the administrative burdens that a first-time investor may be unprepared for. Valuable experience in managing a property and tenants is already built into this program because of the owner-occupier requirement.

The potential downside, of course, is that you, the investor, will have to live alongside your tenants in a multifamily unit, which won’t appeal to everyone. The owner-occupancy requirement also means that the principal borrower will need to move into the property within 60 days of completing the purchase and live in the property for at least a year. 

You’ll also need to factor the inevitable property maintenance expenses into your budget, which means that the rental income you receive may end up covering less of your own mortgage than you would like. 

Still, the additional responsibilities and potential sacrifices of privacy will be worth it for many who have dreamed of real estate investing but have lacked the cash needed to enter the real estate investment market.

When Can I Apply for the New Fannie Mae Loan?

You can apply now. Fannie Mae’s mortgage software has been updated to reflect the policy change, and can now receive applications for the 5% down payment multifamily loans. Some relevant details will be ironed out toward the end of November—for example, private mortgage insurance companies have yet to release their rates for the 5% mortgages—but you can gather all the necessary documentation and begin the application process now.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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Property Chomp’s Take:

Fannie Mae, one of the largest mortgage lenders in the United States, recently made a significant change to its down payment requirement for owner-occupied multifamily property loans. Starting from November 18, borrowers will now only need to provide a 5% down payment, as opposed to the previous requirement of 15% to 25%. This is great news for real estate investors and prospective homeowners as it makes buying an investment property much more accessible.

This change comes at a crucial time, considering the current high-interest rate climate that has made real estate affordability a challenge. By reducing the down payment requirement, Fannie Mae is helping to ease the financial burden on buyers and allowing them to enter the market with less cash.

However, it’s important to note that this loan program is based on owner-occupancy. This means that the borrower must live at the property and act as a resident landlord. The upside of this requirement is that future rental income can be used to qualify for a mortgage loan. While rental income alone won’t make you eligible for a loan, it can be counted towards the total income requirement.

Fannie Mae has also removed the FHA self-sufficiency test requirement for 3-4 unit property loans. Previously, 75% of the rental income from these properties had to be greater than the monthly mortgage repayment amount. With this change, 3-4 unit properties will no longer need to meet this threshold, making it easier to get pre-approved for a mortgage on a multifamily home.

The program has set a cap of $1,396,800 for 2-4 unit loans, expanding the range of properties available to investors, including more luxurious homes. Additionally, low-income borrowers and those interested in house flipping or the BRRRR method can also qualify under the new policy change.

However, there are some exclusions to the program, such as high-balance loans and manually underwritten loans. It’s crucial for prospective borrowers to be aware of these limitations before applying.

The benefits of this new program have been praised by mortgage professionals, who see it as a progressive and timely move. It provides a golden opportunity for prospective homeowners and investors to build equity and create an additional revenue stream. Becoming an owner-landlord also offers valuable experience in property management and tenant relations.

While there are some downsides, such as the need to live alongside tenants and the potential for rental income to cover less of the mortgage, many see these sacrifices as worth it for the chance to enter the real estate investment market.

If you’re interested in applying for the new Fannie Mae loan, you can do so now. The mortgage software has been updated to reflect the policy change, and while some details, such as private mortgage insurance rates, are yet to be released, you can start gathering the necessary documentation and begin the application process.

In conclusion, Fannie Mae’s decision to lower the down payment requirement for owner-occupied multifamily property loans is a game-changer for real estate investors and prospective homeowners. It opens up opportunities for those who have lacked the cash needed to enter the market and provides a pathway to building wealth through real estate.

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