Are you ready for some exciting news that’s about to revolutionize real estate financing, especially for those looking to invest in multi-family properties? Well, I’ve got some big news for you, and it’s a game-changer!
Starting on November 18, 2023, qualifying owner-occupied Conventional loan borrowers will have the incredible option to put down just 5% when purchasing 2-4 unit properties. This update is monumental, and in this article, I’ll delve into why it’s such a significant development.
Why the Excitement?
Let’s start by talking about FHA loans. While they’ve been a popular choice for homebuyers, they come with stringent health and safety requirements. These requirements often involve addressing common issues like peeling paint, knob and tube wiring, and asbestos-wrapped pipes—issues we encounter frequently in Rhode Island’s older housing stock. In today’s competitive real estate market, these requirements have made it challenging for FHA buyers to compete with conventional or cash buyers. Having access to a loan is one thing, but securing the keys to your dream property is another, and this update aims to bridge that gap.
Furthermore, FHA borrowers can only have one FHA loan at a time. So, if someone wanted to purchase another multi-family property, they’d need to save for a substantial down payment, sell their existing property, or refinance into a conventional loan. Refinancing into a conventional loan might not be appealing, especially with current interest rates, considering that 70% homeowners with mortgages are already benefiting from rates below 4%.
The Game-Changing Mortgage Update
Now, let’s get back to the exciting news. Traditionally, Fannie Mae conventional loans required a substantial 15% down payment for 2-family properties and an even heftier 25% down payment for 3 or 4 family properties. However, this recent change is a game-changer because it allows potential buyers to invest in income-producing properties with significantly less upfront cost.
What’s more, this update eliminates the self-sufficiency test, which was previously a requirement for 3/4 family properties. This test mandated that 75% of the total market rent must cover the mortgage payment. However, this requirement became increasingly challenging due to rising interest rates and home prices. The new 5% down payment option for conventional loans removes this self-sufficiency requirement, making it easier for buyers to enter the market.
Not for Everyone, But a Fantastic Opportunity
It’s essential to note that conventional loans do come with lower debt-to-income limits and higher credit score requirements compared to FHA loans. So, while this change is revolutionary, it may not be suitable for everyone and won’t completely replace FHA loans for multi-families. Nonetheless, it’s a fantastic opportunity for a significant group of buyers.
Simplifying the Real Estate Investment Process
In essence, this update simplifies the real estate investment process. Previously, buyers had to consider FHA loans for their first property and then navigate the complex process of refinancing to make it conventional for subsequent investments, all while dealing with fluctuating interest rates. Check out my mortgage calculator to compare the difference on a multi family property, median price for August 2023 was $475,000 and the difference between 5% down vs 15-25%
So, if you’ve been thinking about expanding your real estate portfolio, there’s no better time to act than now! Reach out if you have any questions or if you’d like to explore this further. Real estate truly can be leveraged to support your financial wealth and well being and I’m thrilled to be able to serve as your guide! 🏡🌟