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The Extra Details You Need to Cover When Mortgaging a Multi-Family Home

The investment-oriented homeowner would sooner buy property that earns them money instead of a single home unit that is, in essence, a liability. Multi-family units are a great way to get your own place to live while also making an income by renting the remaining units.

Since such properties are bigger than single homes, they are more expensive and providers of multi-family mortgage loans will ask more questions before granting you the money. Here are some of the things you should expect when looking for your funding for the investment.

How many units are you buying?

The number of units you are buying determines your loan limit and the down payment. For instance, a duplex might need a 10 percent deposit while three or four family homes will need up to 25 percent.

The value will of cause vary depending on your local market and the mortgage provider. Anything with more than four family homes will need a fully-fledged commercial mortgage.

What is your monthly income?

Since multi-family properties are more expensive, you are expected to have a higher income as opposed to people buying single-family homes. You should demonstrate that you can pay the loan premiums and also have the money needed to maintain the property.

You should also prove that you can keep paying your premiums in case your tenants delay their rent payments or you go for a month or two without tenants.

Can you use the tenant income to qualify for the loan?

Sometimes, your lender can accept a fraction of the anticipated rental income as underwriting for the loan. You, however, need signed rental lease documents from real people so that the lender can verify the rental payments.

Even though some lenders might use local market rates to estimate your rental income, very few are willing to consider the amount if your property will be vacant from the first day you purchase it.

Since renting is sometimes unpredictable, it would be wiser to base your mortgage on your verified income and not your income estimations. If you are keen on using rental income, you may need:

  • Documentation to prove that you get steady rental income
  • An agreement to lease for a couple of months (preferably a year)
  • Provide IRS Form 1040 Schedule E as prove that you included your rent in your tax returns

All these requirements make it harder to use rental income as part of your income when applying for the mortgage unless you have a contract with some tenants that span for a year or more.

Will you or will you not occupy the property?

real estate agent shake hands with coupleIf you don’t occupy one of the units, the lender will deem you an investor. This changes some requirements like the down payment and your financial qualifications for the loan. More often than not, getting the multi-family unit mortgage is easier if you are going to occupy one unit.

These are the most iconic differences between a single family and multiple family residential units. The fact that they are an investment means that your mortgage provider will scrutinize your financial history and interests a little bit more.