Purchasing 2 To 4 Unit Properties
First time home buyers or home buyers who eventually want to become real estate investors can now purchase 2 to 4 unit properties as an owner occupied residence with a FHA Loan with 3.5% down payment. 2 to 4 unit properties can be great investments for home buyers intending on occupying one of the units and renting the other units to offset the monthly housing expenses. FHA does require that mortgage loan borrowers of 2 to 4 unit properties occupy one of the units for at least one year. After occupying one of the units for at least one year, the 2 to 4 unit property owner can then qualify for another owner occupied home and rent out the unit they are exiting.
FHA Loans And 2 To 4 Unit Properties
To qualify for 2 to 4 unit properties with a FHA Loan, the mortgage loan borrower needs at least a 580 FICO credit score. There is a 3.5% down payment requirement for mortgage loan borrowers with at least a 580 FICO credit score. Borrowers with credit scores under 580 FICO credit scores, a 10% down payment is required. Mortgage rates on 2 to 4 unit properties are higher than mortgage rates of single family homes because mortgage lenders view multi unit buildings as higher risk. With higher risk means higher mortgage rates. To get the best mortgage rates on 2 to 4 unit properties, one should have credit scores of at least 640 FICO. Mortgage lenders will require three months of reserves for three and four unit properties. Reserves are one month of principal, interest, taxes, and insurance or PITI. Many mortgage lenders require two years landlord experience from the mortgage loan borrower to be able to count potential rental income as part of their mortgage lender overlay. If a mortgage lender requests two years landlord experience in order for them to count potential rental income, the seek another mortgage lender where they have no mortgage lender overlays .
Using Potential Rental Income To Qualify
FHA allows up to 85% of the potential market rent income to qualify for the mortgage loan borrower’s income calculations. However, many FHA mortgage lenders have mortgage lender overlays where if the mortgage loan borrower does not have two years landlord experience, then the potential rental income cannot be used to qualify. If you are told that you do not qualify due to mortgage lender overlays because you do not have two years landlord experience, contact Gustan Cho Associates at 262-716-8151 or email Gustan Cho at GustanCho@Outlook.com.
Can I Qualify For 2 To 4 Unit Properties With Conventional Loans?
You can qualify for 2 to 4 unit properties with conventional loans, however, owner occupied 2 to 4 unit properties require 15% down payment with conventional loans. You can also use potential rental income but the potential rental income you can use is 75% of the potential market rent that is stated on the home appraisal.
What Are FHA Loans?
FHA Loans are the most popular mortgage loan programs in the United States today. The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development, HUD. FHA is not a mortgage lender. FHA’s mission and objective is to insure FHA Loans against default from FHA mortgage loan borrowers which are originated by banks and mortgage companies who are FHA approved and where all their mortgage loans meet FHA mortgage lending guidelines. As long as the FHA approved banks and mortgage bankers make sure that all of their FHA mortgage loan borrowers meet minimum FHA mortgage lending guidelines, FHA will insure the FHA approved banks and mortgage lenders in the event if the mortgage loan borrower defaults on their FHA Loans.
Minimum Requirements On FHA Loans
FHA Loan Requirements include the following:
- Minimum 580 FICO credit scores for 3.5% home purchase FHA Loans.
- If credit scores are under 580 FICO, then 10% down payment is required.
- If credit scores are under 620 FICO, then maximum debt to income ratio is capped at 43% debt to income ratio.
- If credit scores are 620 FICO or higher, then the maximum back end debt to income ratios are capped at 56.9% and maximum front end debt to income ratios are capped at 46.9%.
- FHA does not count medical collection accounts and charged off collection accounts and are ignored. Each individual mortgage lender can have mortgage lender overlays on medical collection accounts and charged off accounts.
- Mortgage loan borrowers can qualify for FHA Loans with unpaid non-medical collection accounts without having to pay it off or without a written payment agreement. However, if the unpaid collection balance is great than $2,000, then 5% of the unpaid balance will be used as a monthly debt payment obligation and be used to calculate the mortgage loan borrowers debt to income ratios.
- FHA Loan Programs allow for non-occupant co-borrowers to be added on the mortgage loan in order to qualify.
- Borrowers with prior bankruptcy and foreclosure can qualify for FHA Loan Programs as long as they have waited two years after a Chapter 7 Bankruptcy discharge and three years after the recorded date of foreclosure and/or recorded date of deed in lieu of foreclosure and three year waiting period after the date of a short sale.
- FHA Loan Borrowers can get their down payment gifted by a family member and/or relative with a gift letter which states that the home buyer is not going to pay the gift funds back and that the gift funds is not a loan but merely a gift. 100% gift funds are acceptable.
Gustan Cho Associates
If you are shopping for a mortgage lender with no lender overlays, contact Gustan Cho Associates . Gustan Cho and his associates are experts in FHA Loans, VA Loans, USDA Loans, Conventional Loans, Jumbo Loans, and Portfolio Loans. Gustan Cho Associates are also commercial loan specialists and hard money lenders. Gustan Cho Associates is also associated with Doctors Funding Group, a direct lender where it offers unsecured financing to healthcare professionals such as medical doctors, dentists, veterinarians, pharmacists, physical therapists, and chiropractors. If you need a no mortgage lender overlay lender, contact Gustan Cho directly at 262-716-8151 or email Gustan Cho Associates at GustanCho@Outlook.com.