Home Loans for Multi-Family Properties
Any property that has 2-4 units is considered a multi-family home. This includes duplexes (2 units), triplexes (3 unit), and fourplexes (4 units). Keep in mind, that any property that has more than 4 units is considered commercial. If you are looking to finance a property with 5 or more units, seek out a commercial mortgage lender (unfortunately, we do not offer these types of loans).
One of the best aspects of 2-4 unit properties is that if you plan to occupy one of the units, it receives similar treatment to that of a single family residence. This means that you can obtain a loan with the same type of loan terms as a 1 unit home since it will be classified as “owner occupied” instead of as an investment property.
Fortunately, there also are higher loan limits allowed on multi-unit homes to accommodate to higher prices for these sort of purchases. With each additional unit, the limit of what you can borrow is higher. This is the case for both conforming loan limits (conventional loans) and FHA loan limits. Conforming loan limits and FHA loan limits are the same throughout most the country, but vary in higher cost areas.
2019 Conforming Loan Limits:
- 1-unit home : $484,350
- 2-unit home : $620,200
- 3-unit home : $749,650
- 4-unit home : $931,600
2019 FHA Loan Limits:
FHA loan limits are set at the county level. They range greatly based on the average cost of a home in a certain location. There is what is called a “floor” for low cost areas, and the “ceiling” for high cost areas.
Low cost areas:
- 1-unit home : $314,827
- 2-unit home : $403,125
- 3-unit home : $487,250
- 4-unit home : $605,525
High cost areas:
- 1-unit home : $726,525
- 2-unit home : $930,300
- 3-unit home : $1,124,475
- 4-unit home : $1,397,400
Obviously, this is quite a wide range. Be sure to research the FHA loan limits in your county so you know for certain how much you can borrow with a FHA loan in your desired location.
What is the best multi-family home loan?
The best mortgage for your multi-unit home purchase largely depends on how much you want to borrow and how much you want to put down (as a down payment). For the majority of borrowers, it will either be a conventional or FHA loan (if you are a veteran and are looking for a 2-4 unit property, please visit our page on VA loans for multi-unit homes). The difference in the down payment requirements between a conventional loan and a FHA loan for 2 or more units is significant.
FHA loans for multifamily properties (duplexes, triplexes, and fourplexes)
If you are limited in what sort of down payment you can make, an FHA loan for multi-family homes is going to be your best (and perhaps only) option. FHA loans only require a 3.5% down payment. This is the case whether you are buying a one, two, three, or four unit home.
Conventional loans, however, require a much larger down payment for 2-4 units. These are the Fannie Mae guidelines, which means that no lender can budge on these requirements. To finance a duplex with a conventional loan, the minimum down payment is 15%. For a triplex or fourplex, you will need to place at least 25% down.
Frequently Asked Questions
We receive a lot of questions related to this topic, and are included the most frequently asked questions here. If you would like to ask questions directly to a loan specialist, call 1-800-731-3560.
Do I have to occupy the home in order to be eligible for a FHA multi-unit loan?
A characteristic of FHA loans that not everyone is aware of is that you must occupy a residence in order for it to qualify for a FHA loan. This means that the only way you can obtain a FHA insured loan is if you will be living there. However, you can rent out the other unit or units in your multiplex property. This is the only scenario in which you can obtain a FHA loan for any type of investment property.
Do I have to occupy the home in order to be eligible for a multi-unit conventional loan?
With a conventional mortgage, you have more options. While FHA loans require you to occupy the property, a conventional loan allows multi-unit properties to be financed as either owner occupied or as an investment property. What is the difference? Rates are lower for owner occupied homes, and it is also easier to qualify if it is your primary residence. If you already have a mortgage payment, this could affect your qualifying debt-to-income ratios.
Are there any limitations regarding having a cosigner?
The requirements are much the same for 2-4 units as they are for standard conforming and FHA funding. You can have a cosigner / co-borrower on your loan. However, FHA rules state that the cosigner must occupy the property as their primary residence. You can not have someone cosign on a FHA loan that does not reside at the home.
How does mortgage insurance work on these types of loans?
The mortgage insurance requirements are the same for 2, 3, and 4 unit homes as they are for single family residences. You are obligated to pay PMI if you choose a conventional loan and place less than 20% down. If you choose a FHA loan than you must pay the upfront mortgage insurance (1.75%) and the monthly mortgage insurance premiums which will be based on your loan amount and LTV.