Fannie Mae Slashes Minimum Down Payment On Owner-Occupied Multiunit Properties To 5%

After a year of being beseeched with bad news, real estate investors got a ray of sunshine from Fannie Mae. The government-backed lender recently announced it will reduce the minimum down payment on owner-occupied multiunit properties. That amounts to a major reduction from the previous minimum of between 15% and 25%. Benzinga looks at the new rules, and how they could benefit real estate investors.

Huge Potential Benefit For Real Estate Investors

This move has the potential to radically expand access to properties between two and four units for small investors. Owner-occupied duplexes, triplexes and fourplexes have long been ideal starting points for budding real estate investors. Buying properties like this allows buyers to kill two birds with one stone because they allow the owner to occupy one unit while using tenant rents to contribute to the mortgage.

Over time, these units can begin generating rental income for the owner. Once the mortgage is paid off, the tenant rents become income. Astute property owners can put tenant rental income to work in numerous ways. If the property owner uses the tenant rents to pay the mortgage faster, their equity will increase rapidly. The owner can access that equity to finance the purchase of a single-family home or another multiplex.

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A Different Type Of Multifamily Housing

When most people think of apartments and multifamily housing, the first thing that jumps to mind is a medium to large apartment building or a large apartment complex with several units. What they may not realize is that nearly 7% of the residences in the United States are multiunit spaces with between two and four units.  More to the point, 1 in 6 American rental units are in a two- to four-unit complex.

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Historically, borrowers looking to buy and live in the multiplexes with Fannie Mae financing had to meet a sliding minimum down payment scale that went up based on the property size. This scale increased as follows:

• Two-unit minimum down payment — 15%

• Three-unit minimum down payment —  20%

• Four-unit minimum down payment — 25%

This was in addition to meeting the credit and income requirements. Coming up with the old minimum down payment was much easier for qualified borrowers a few decades ago. Now that the average home price in America is in the $500,000 range, a 15% down payment on a duplex would be around $75,000. Buyers looking at a fourplex would need to come up with $125,000.

Loan Limits Have Been Raised, Too

Under the old minimum down payment requirements, a limited number of buyers could come up with that kind of liquidity. In many cases, buyers were more likely to be successful or well-funded investors, which only served to freeze even more potential buyers out of the duplex, triplex and fourplex market.

The reduced down payments are part of an effort by Fannie Mae and the Federal Housing Administration to increase home ownership and make housing more affordable, and they have raised loan limits accordingly. The new loan limits for multiunit properties are:

• Two-unit loan limit: $929,850

• Three-unit loan limit: $1,123,900

• Four-unit loan limit: $1,396,900

Buyers May Still Have To Adjust Their Expectations

Lowering the minimum down payment and lifting the loan limit will come as welcome news for real estate investors. They may still have to adjust their expectations when it comes to where they buy. Even with these looser lending standards, major cities like Los Angeles or New York may still be too expensive for first-time buyers.

With that said, states like Georgia, Tennessee, Texas and the Carolinas all have medium to large cities with strong rental markets. An astute investor who is willing to consider new markets could put the new lending rules to good use in some solid metropolitan areas or outlying suburbs. Finally, small investors who have been sitting out the housing market get some good news. Fannie Mae has just made this potential path to ownership a bit easier.

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This article Fannie Mae Slashes Minimum Down Payment On Owner-Occupied Multiunit Properties To 5% originally appeared on Benzinga.com

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