Multifamily Property Mortgages Got Cheaper

November 29th, 2023

multifamily home

Multifamily mortgage financing just got cheaper.

What Is A Multifamily Home?

Multifamily residential homes are two, three, and four unit homes. These are also called duplex, triplex, and four-plex homes. I have also heard them called two-family, three-family, and four-family homes.

Fannie Mae defines multifamily property as, “A property that consists of a structure that provides living space (dwelling units) for two to four families. Although ownership of the structure is evidenced by a single deed.”

Any home with more than 4 units is considered a commercial property. These don’t qualify for a residential loan. I don’t do commercial loans. I do have some knowledge of commercial loans. They typically require large down payments, like 25% down or more. I doubt that will ever change.

Multifamily residential property has historically also required significant down payments. These down payments ranged from a minimum of 15% down to as much as 25% down.

How Did Things Get Cheaper?

Fannie Mae recently announced a 5% down payment option for multifamily homes. This is a significant policy change. Interestingly, Freddie Mac has not made the same change. Not as of yet, anyway.

As far back as I can remember I was told that Fannie Mae and Freddie Mac demanded large down payments for multifamily property. This is because of the commercial nature of the property. Homebuyers can live in one unit and rent the others. Due to the rental income, that created a commercial enterprise in the home. And that was deemed riskier than a traditional single family home. And due to this increased risk they required much higher down payments.

Now homebuyers that want to buy multifamily property and be owner-landlords can buy with much less cash.

Is This For Investors Too?

What about someone who is an investor, and seeks to rent out all units in a multifamily home? They would not be eligible for the reduced down payment. They would still be required to have the larger down payments.

Does Rent Help You Qualify?

Another important note on financing multifamily property is related to using rental income to qualify. The scenario may dictate different rules as to how you document and how you count rent. When buying a multifamily property one would typically count 75% rent of gross rents. That 75% would then be used to offset the mortgage payment.

Also, Fannie Mae does not require the homebuyer to currently own a property to use rental income to qualify. But rental income can only be used to offset the mortgage payment. Positive cash flow cannot be used as income towards qualifying.

However, Freddie Mac does require the borrower to currently own a primary residence to use rental income.

How Much Can I Borrow?

Fannie Mae and Freddie Mac both allow for higher “Conforming” loan amounts for multifamily property. They’ll lend higher loan amounts for multifamily property than for single family property. I’ll show  you.

In most areas, the maximum conforming loan limits for 2023 are as follows:

Single-family property       $726,200

2 unit (Duplex)                      $929,850

3 unit (Triplex)                      $1,123,900

4 unit (Four Plex)                  $1,396,800

For high cost areas

But if you live in a high cost area, the conforming loan limit may be even higher. These loans are called conforming “high balance” loans. And they can come at a slightly higher interest-rate. Those loan limits are:

Single-family property   $726,201 – $1,089,300

Duplex                                   $929,851 – $1,394,775

Triplex                                    $1,123,901 – $1,685,850

Four Plex                               $1,396,801 – $2,095,200

Any mortgage amount that is higher than the loan limits outlined above is considered a jumbo loan. And they would be subject to different requirements.

Each year the Conforming loan limits are changed. Changes are made based on median sales prices in each county.

History of Conforming loan amounts

Check out how conforming loan limits for single family homes have changed throughout the years. This dates all the way back to my first year in the business, 1986! Conforming loan limits are now about 5.5 times what they were in 1986! Notice from 2006 to 2016 the loan limits didn’t increase one dollar. That was during a massive economic recession and real estate correction. This is really interesting data.

Year Loan Limit
2023 $726,200
2022 $647,800
2021 $548,250
2020 $510,400
2019 $484,350
2018 $453,100
2017 $424,100
2016 $417,000
2015 $417,000
2014 $417,000
2013 $417,000
2012 $417,000
2011 $417,000
2010 $417,000
2009 $417,000
2008 $417,000
2007 $417,000
2006 $417,000
2005 $359,650
2004 $333,700
2003 $322,700
2002 $300,700
2001 $275,000
2000 $252,700
1999 $240,000
1998 $227,150
1997 $214,600
1996 $207,000
1995 $203,150
1994 $203,150
1993 $203,150
1992 $202,300
1991 $191,250
1990 $187,450
1989 $187,600
1988 $168,700
1987 $153,100
1986 $133,250

Mortgage guidelines can change at any time. Always talk to an experienced mortgage loan officer who will help you understand the current guidelines and how they might apply to you.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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