Real Estate Investing
5% Down Payment Fannie Mae Multifamily Loan: Multifamily Properties More Accessible

5% Down Payment Fannie Mae Multifamily Loan: Multifamily Properties More Accessible

The 5 down multifamily Fannie Mae Loan option for real estate has hit the market. Real estate investing has become more accessible with Fannie Mae (also known as the Federal National Mortgage Association-FNMA). This is great for new real estate investors, as it reduces the downpayment requirement, for multifamily homes, to 5%! This is a great loan option for real estate investing, like the FHA loan and VA home loan. Here is how you can use this new option to get started in real estate investing in multifamily properties!

Why Multifamily Properties?

Hand holding multifamily properties that you can buy with 5% down payment fannie mae loan option for real estate for new real estate investors

First, why should new real estate investors invest in multifamily properties? If you want to get into real estate investing, “house hacking,” is a great way to start. “House hacking” refers to buying a property, living in it while also renting out a piece of your property. You can do this by renting out a room, parking lot, or anything that can generate income from renting a space. With multifamily properties, you can live in one unit and rent out the other units. This is a great way to buy your first rental property, generate income, and reduce your own housing costs!

What are the benefits?

There are so many benefits, for new real estate investors, when buying a multifamily home to “househack,” as your first real estate investment. These include:

  • Cash Flow: Provide consistent rental income known as cashflow. Cashflow is the difference between your monthly income and your monthly net operating expenses. Cashflow is known to be higher with multifamily properties.
  • Diversification: Your risk is spread out with multiple units. This is because the risk is spread among various tenants, reducing the impact of vacant spaces on their income.
  • Property Appreciation: Multifamily properties, like any real estate, have the potential to appreciate over time, leading to increased property values. However, depending on the market, the property may appreciate at a slower rate than a single family home would. Regardless, if you hold the property for a long time, you will still have positive appreciation.
  • Tax Benefits: Lastly, my favorite benefit of not only multifamily properties, but with real estate investing, is tax deductions. Rental properties provides so many deductions from depreciation to deducting most operating costs. As a result, you reduce your tax liability, which keeps more money in your pocket. That means you have more money to buy more multifamily properties!

What is considered a multifamily property?

What is considered a multifamily home? In multifamily real estate, a multifamily refers to property that houses multiple families or tenants within the same building. These properties are usually the following:

  • Small apartment complexes
  • Duplexes
  • Triplexes
  • Quadplexes

Loan Options for Real Estate Investing

Morgtage paperwork with a house and letters Loan. Loan options for real estate for new real estate investors include 5% down payment multifamily Fannie Mae option

The Multifamily Fannie Mae 5% Loan

Fannie Mae, a government-sponsored enterprise, recently introduced a program that allows investors to purchase multifamily properties with a down payment as low as 5%. This is a conventional loan, which means it is not as strict on the type of properties you can buy, like an FHA loan does. The 5% down payment multifamily Fannie Mae loan option is designed to make it easier for investors to enter the market. Here’s what you need to know:

  1. Eligibility: Investors must meet certain criteria, such as a minimum credit score and debt-to-income ratio, to qualify for the 5% down payment option.
  2. Property Type: The property must be a two- to four-unit residential property.
  3. Reserves: Fannie Mae may require investors to have additional financial reserves as a safety net for future property expenses.
  4. Rent Payment History: Lenders may consider the potential rental income from the property when assessing eligibility.
  5. Underwriting Standards: While the 5% down payment option is more accessible, Fannie Mae maintains strict underwriting standards. These standards help to minimize the risk.

How does it compare to the FHA Loan Option?

Loans for Buying Multifamily Properties

The Federal Housing Administration (FHA) loans are government-backed loans. These loans are ideal for first-time homebuyers who have low credit scores or lower down payments. This can be a great way for new real estate investors to get into real estate investing, with your first home, as FHA loans allow the purchase of multifamily properties. The key features of FHA loans for multifamily investments include:

  1. Low Down Payment: FHA loans typically require a down payment as low as 3.5%, making them accessible to a broader range of investors.
  2. Competitive Interest Rates: FHA loans often have competitive interest rates, making them an attractive financing option.
  3. Flexible Credit Requirements: While credit requirements exist, they are typically more forgiving compared to traditional loans, allowing investors with slightly lower credit scores to qualify.
  4. Mortgage Insurance: FHA loans require mortgage insurance, both an upfront premium and annual premiums. This is an additional cost to consider, but it allows investors to secure financing with a lower down payment.
  5. Property Requirements: The property must meet certain FHA guidelines, including specific occupancy requirements. Generally, one of the units must be the investor’s primary residence.
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Loans for Buying Multifamily Properties

Is the multifamily Fannie Mae option better?

When deciding between an FHA loan and the multifamily Fannie Mae 5% down payment option, new real estate investors should consider their financial situation, investment goals, and the specific multifamily property they’re interested in. Here are some key factors to keep in mind:

  1. Credit Score: FHA loans may be more forgiving of lower credit scores, while Fannie Mae has stricter requirements.
  2. Down Payment: FHA loans offer a lower down payment, but Fannie Mae’s 5% option can be a viable choice if you have a bit more upfront capital. With both, you will still be required to have Private Mortgage Insurance (PMI). However, you can re-finance into a conventional loan when you are eligible.
  3. Property Type: Consider the type of multifamily property you’re interested in. Fannie Mae’s 5% down payment requirement applies to two- to four-unit properties, while FHA loans cover properties with up to four units. However, with the 5 down option, you can purchase more distressed properties. In contrast, the FHA loan will have strict restrictions on the condition of the properties you can buy.

Conclusion

Investing in multifamily real estate can be a wise decision for new real estate investors, looking to generate rental income and build their portfolio over time. FHA loans and Fannie Mae’s 5% down payment requirement provide accessible paths to multifamily property ownership. By understanding the advantages and limitations of each financing option, new real estate investors can make informed decisions to achieve their real estate investment goals. Always consult with a financial advisor or mortgage professional to determine the best approach for your unique circumstances.

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