Did you know that multifamily units can be a great way to generate income? The multifamily properties with four units fall into the category of real estate. There are now multifamily mortgages available for four-units too. Such properties are also commercial real estate; however, the financing procedure is difficult. The mortgages for commercial real estate come with short repayment schedules and big down payments. However, FHA loan can smooth out the procedure on a large scale.
Untangling much confusion, people can purchase a multi-unit with the FHA mortgage. Taking a close look at the real-life example, a multi-unit house was sold on December 13th, 2019 at 3714 Gager St, Houston, TX 77093 for $450,000. The house has 6 beds and 6 bathrooms. The applicant was approved for an FHA loan with a 3.5% down payment for a loan of $258,138. Therefore, the cash to closing cost ($12,009.01) was low because the buyer’s realtor had negotiated a seller contribution. That’s why; the customer had to put down only $15,750. After going through the scenario, you can expect to acquire a multi-unit house for passive income. However, there are certain things to know before applying an FHA loan multifamily 4 units – 3.5% down payment.
Buying Four-Living Unit with an FHA Loan
The FHA home loan is only available for owner-occupiers. Therefore, the borrower needs to begin utilizing the purchased home within 60 days after closing. According to HUD 4000.1, the FHA single-family loan handbook, the borrower needs to be the owner-occupier for a minimum of a year. You can buy the multi-unit property and rent out the unutilized living units. In this case, the lender might have to factor in prospective rental income and make it a component of the borrower’s debt-to-income ratio.
Benefits of Buying Multi-Unit with FHA Mortgage
The best part of buying a four-living unit is that low down payment. Buying a multi-unit does not differ from a single-unit because the down payment can be as low as 3.5%. If you rely on conventional loans, the down payment can be higher. Additionally, renting out the unused property is another advantage for the borrower. The rental payment that the borrower receives can be used further for paying down the mortgage. This is a great option to keep down the pocket costs.
Meeting the FHA Minimum Standard is Essential
As it is imperative to meet FHA minimum standards for a single-unit, it is essential to do the same for a multi-unit property. The borrower must expect to pay for the appraisal and negotiate with the seller for the cost of needed repairs or corrections. If any compliance inspection is also required, it must go according to the guidelines. The credit requirements are similar for the single-unit and multi-unit houses; hence, you might have to secure 500 for credit score.
If there are other requirements to follow, the lender can be a huge help. Along with state law, there are other factors to consider. So, get in touch with the professional lender now.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.