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, for Conforming loan amounts. The 5% down payment is not eligible for Conforming “High Balance” loan amounts, nor Jumbo loan amounts. 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. 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. But they are not eligible for the 5% down payment options for 2-4 unit homes. 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”.
Tags: 2-4 unit homes, multifamily
