Fannie Mae’s 5% Down Multifamily Loan: What You Need to Know

Lowered down payment requirements for multifamily homes

As you may already know, last November, Fannie Mae made a notable policy change. Effective from the weekend after November 18, 2023, it began accepting 5% down payments for owner-occupied 2-, 3-, and 4-unit homes. This marked a departure from the previous multifamily financing requirement of 15-25% down payments for duplexes, triplexes, and four-plexes.

This new option presents a great opportunity for individuals looking to invest in multifamily homes while also enjoying the benefits of homeownership. Prospective owner-landlords can now afford these properties more easily, thanks to the reduced down payment requirement by Fannie Mae.

What is a multifamily loan?

A multifamily loan is a type of financing designed for purchasing properties that house multiple separate living units, like apartment buildings or duplexes.

These loans have distinct characteristics, such as higher loan amounts compared to single-family home loans, and they often come with different underwriting standards that consider the property’s income potential rather than just the borrower’s personal income.

How will Fannie Mae’s 5% down loan benefit multifamily homebuyers?

First-time buyers and those looking to reduce high mortgage payments can now benefit from Fannie Mae’s improved financing options. Here are the key changes introduced by the new policy:

• The policy change applies to standard purchases, no-cash-out refinances, HomeReady, and HomeStyle Renovation loans for owner-occupied transactions.
• The maximum loan amount allowed for these 2-4 unit properties is set at $1,396,800, ensuring that larger and more expensive properties can be purchased with flexibility.
• The elimination of the FHA self-sufficiency test for 3-4 unit properties means that buyers will face fewer hurdles when seeking pre-approval for these types of multifamily homes.

How to apply for the new Fannie Mae 5% down loan

Thinking about using this new low-down payment loan to purchase your own rental property? Now is the time to apply, as Fannie Mae has already integrated these changes into their system since November 18, 2023. Here’s how to get started:

Step 1: Find a lender: Look for lenders approved by Fannie Mae who offer multifamily loans. They can guide you through the application process.

Step 2: Check your eligibility: Ensure you meet Fannie Mae’s eligibility criteria, which typically include credit score requirements, income verification, and property guidelines.

Step 3: Complete the application: Complete the loan application provided by your lender. Be ready to disclose details about the property and your financial situation.

Step 4: Close the loan: If all goes well and your application is approved, finalize the loan by signing the necessary documents and paying any closing costs.

The bottom line

For owner-occupant landlords, this policy shift represents a significant opportunity to reduce mortgage payments by leveraging rental income. The ability to make a smaller down payment not only makes multifamily homes more accessible, but it also allows home buyers to gain valuable landlord experience, as they have the opportunity to collect rent from other units while simultaneously building equity in their own property.

Fannie Mae’s move to lower the down payment requirements for multifamily homes is a promising step towards improving access to credit and affordable rental housing. With this progressive policy change, the dream of owning a multifamily home while generating rental income is becoming more attainable for mortgage loan borrowers.