Yes, you can have small down payments on multi-family homes
Dream of buying a multifamily home, like a duplex, living on one side, and renting out the other?
It’s a pretty common thought, and something I personally did in my early years. It was great. The rented side paid about 95% of my monthly mortgage payment. Meaning I was building equity, and essentially living free. How cool is that?
Until recently, the only small down payment option to buy a multi-family home, and live in was unit was an FHA loan loan, which required only a small 3.5% down payment.
While there is absolutely nothing wrong with an FHA home loan, there are some positives and negatives about this option. One negative being primarily that an FHA loan does have a more stringent requirement for the condition of the home. For example, if the home is older than 1978, ANY peeling paint on the property needs to be repaired prior to your closing on the home. This would seem minor, but you’d be surprised how many times a seller is unwilling to fix.
The other major FHA issue on tri-plex, and four-plex units, was a ‘self-sufficiency’ test that sometimes created hurdles to this loan.
That left buyers on some home without a low down payment option, as Fannie Mae and Freddie Mac required anywhere from 15% down on a duplex, to 25% down on a four-plex.
Enter Fannie Mae 5% down option
As of November 2023, Fannie Mae changed their mutli-family home down payment guidelines to require just 5% down, helping to ensure more options for more people to become owner occupant landlords.
For owner occupant landlords, this policy shift is seen as a big plus, and represents more opportunities to reduce housing costs for home buyers by leveraging positive rental income, and make multifamily homes more accessible to more people.
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