The dream of owning investment property just became more accessible for many thanks to a major policy change by Fannie Mae. As of November 2023, Fannie Mae began accepting 5% down payments on 2-4 unit conventional loans for owner-occupied properties. This groundbreaking reduction from the previous 15-25% down payment requirements for multifamily homes opens up opportunities for first-time home buyers, real estate investors, and those seeking to reduce their housing costs.
In this post we’ll break down everything you need to know about Fannie Mae’s new 5% down conventional multifamily loans. Let’s dive in!
Overview of Key Changes
Here are the key details of Fannie Mae’s new 5% down payment conventional loan option for 2-4 unit owner-occupied properties:
- Down payments as low as 5% now allowed for purchase and no-cash-out refinance transactions
- Applies to standard conforming loans and HomeReady mortgages
- No more self-sufficiency test required for 3-4 unit properties
- Allows use of future rental income from other units to help qualify
- 6 months reserves still required after closing
- Maximum loan amount up to $1,396,800 depending on location
This change went into effect on November 18, 2023 and is now available through lenders nationwide.
Huge Reduction in Down Payment Requirements
Prior to this change, Fannie Mae required much higher down payments on 2-4 unit properties:
- 15% down for 2-unit properties
- 25% down for 3-4 unit properties
Now, buyers only need 5% down on any owner-occupied 2-4 unit property. This substantially reduces the cash needed upfront to purchase investment real estate.
For example, on a $400,000 duplex, the minimum down payment drops from $60,000 to just $20,000 – a $40,000 reduction! And on a $500,000 triplex, downs payment drops by $100,000.
This makes multifamily properties far more accessible, especially when combined with the ability to use future rental income from units you won’t live in to qualify for the mortgage.
No More Self-Sufficiency Test for 3-4 Units
Another major benefit is the elimination of FHA’s strict self-sufficiency test for 3-4 unit properties. This test requires the property to cover its entire monthly payment using just 75% of expected rents.
With rental income squeezed by high inflation and mortgage rates at 20-year highs, barely any properties can pass this unrealistic test. But Fannie Mae’s 5% down conventional loan has no such requirement.
This gives buyers renewed options for securing financing on 3-4 unit buildings.
Use of Future Rental Income to Qualify
Fannie Mae allows use of expected future rental income from units you won’t occupy to help qualify for one of these low down payment mortgages. This can help buyers afford higher purchase prices or offset larger loan payments in today’s market.
You can add future rental income, minus a 25% vacancy factor, to your total qualifying income. This gives first-time investors a leg up in affording investment property even if they don’t have experience managing rentals yet.
Reserves Still Required
While Fannie Mae relaxed down payment requirements, they still mandate buyers have 6 months of reserves based on the full mortgage payment amount after closing.
This cash can be used for emergency expenses and vacancies in the future. While reserves don’t need to be paid upfront, you must prove the funds are available in accounts you can access.
So those savings for down payment, closing costs, and 6 months reserves still need to be prepared. But the reduction to just 5% down makes multifamily investment more feasible for more buyers.
High Conforming Loan Limits
Another plus is that these 5% down Fannie Mae mortgages come with high conforming loan limits, meaning you can purchase more expensive properties.
The maximum loan amount on a 2-4 unit property can be up to $1,396,800 depending on location. That’s enough buying power for a 2-unit property up to $978,785, 3-unit up to $1,183,050, or 4-unit up to $1,470,315 with just 5% down.
Bottom Line
Fannie Mae’s groundbreaking introduction of 5% down conventional multifamily loans makes investment real estate more accessible than ever before. By massively reducing down payment requirements and eliminating strict qualifying hurdles, buying a 2-4 unit property as an owner-occupant just got much easier.
First-time home buyers can more feasibly purchase a duplex, triplex or fourplex to gain landlord experience while building equity. And real estate investors have renewed options to add rental properties to their portfolios.
If you’ve been hoping to buy investment real estate, now may be the perfect time to explore your options with one of these low down payment Fannie Mae mortgages. Connect with a lender to learn more and get pre-approved today!
Exciting announcement: Fannie Mae introduces 5% down payment opportunity for multi-family homes!
Calling all aspiring real estate investors! Fannie Mae has made a groundbreaking policy shift to revolutionize your homeownership path. Starting November 18, 2023, they are rolling out a game-changing 5% down payment option for owner-occupied 2-, 3-, and 4-unit properties.
Yes, you read that right! In the past, the down payment requirement for a multi-family home was 15%-25% of the property’s sales price.
This policy change means purchasing multi-family homes became much more affordable and accessible. Thanks to Fannie Mae’s forward-thinking move, more individuals can now seize the opportunity to invest in income-generating properties. This policy shift applies to standard purchases, no cash-out refinances, HomeReady and HomeStyle Renovation loans for owner-occupied properties.
First-time homebuyers and borrowers hoping to offset high mortgage rates can now benefit from a conventional loan and use rental income to pay a portion of their mortgage.
The loan amount cap for these 2-4 unit homes is now $1,396,800, enabling buyers to acquire larger and pricier properties more easily. Moreover, removing the FHA self-sufficiency test for 3-4 unit properties ensures a smoother path for buyers seeking pre-approvals for multi-family housing.
NEW 5% DOWN Multifamily Conventional Loan (2-4 units)
FAQ
What are 5 percent multifamily requirements for Fannie Mae?
What is a conventional multifamily loan?
Can you do 5 percent on conventional loan?
What is the 5% rule for Fannie Mae?
Is a 5% down payment enough for a multi-family loan?
For a single-family home, 5% is more than enough for a down payment for many home loan options. In the past, a 5% down payment was not enough to purchase a multi-unit property. But Fannie Mae’s recent rule change allows owner-occupants to put down as little as 5% on a property with two to four units. Does Fannie Mae do multi-family loans?
Does Fannie Mae offer multi-family home loans?
Yes, Fannie Mae offers multi-family home loans. As of mid-November 2023, owner-occupants can put down as little as 5% on a multi-unit property with two to four units. The recent change announced by Fannie Mae opens the door for more prospective homeowners to purchase multi-unit properties.
What is a conventional purchase loan with a 5% down payment?
Loans backed by government-sponsored enterprises Fannie Mae and Freddie Mac are generally conventional loans. To qualify for a conventional purchase loan with a 5% down payment for a two- to four-unit property with Compass Mortgage, borrowers must meet the following requirements:
What types of loan options are available for a multifamily property?
Our loans are securitized on a single-asset basis, providing creative structuring flexibility. First-lien permanent mortgage loan financing options for the acquisition and/or refinancing of multifamily properties. Flexible fixed-rate options for acquiring or refinancing multifamily properties.
What is Fannie Mae’s new multifamily financing program?
Fannie Mae’s new program represents a significant milestone in the realm of multifamily real estate financing, offering a compelling opportunity for buyers to enter the market with reduced down payments and enhanced flexibility.
Will Fannie Mae accept lower down payments on multifamily housing?
Effective November 18, Fannie Mae will begin accepting lower down payments on multifamily housing. Read all of the details here.