Real Estate Investing
Fannie Mae 5% Down Loan for Multifamily Homes: A Game-Changer for the New Real Estate Investor

Fannie Mae 5% Down Loan for Multifamily Homes: A Game-Changer for the New Real Estate Investor

Fannie Mae has announced that they will be offering a 5% down loan option for multifamily homes! This is great news for a new real estate investor who wants to get into real estate investing or just lower down their housing costs.

Real estate investing has long been known as a great way to build wealth, especially with multifamily homes as your first one. However, it can be out of reach for those who are unable to save up the high down payments required. Now, that changes with this new option. So let’s talk about how you can take advantage!

Cashing in on Fannie Mae's 5% Down Payment on Multifamily Homes on the MoneyChisme Podcast.
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Who is Fannie Mae?

Who is Fannie Mae? Well, they are one of the government-sponsored enterprises who purchase mortgage loans and provide a guarantee for them. They do not originate the loans themselves. Instead, they acquire mortgage loans made by lenders and then issue guaranteed mortgage-backed securities. By doing this, they attract investors. With the guarantee, lenders have less risk, making loans more affordable and attainable. However, they still have their other general loan requirements.

Why the Change?

Previously, Fannie Mae required 15%-25% downpayment for multifamily properties. This made it pretty difficult for those looking to buy a multifamily home to live in. Additionally, the housing market has made home ownership hard to achieve.

As a result of the housing crisis, Fannie decided they wanted to help reduce housing costs and increase access to housing, by making multifamily homes more attainable. Therefore, they have reduced their down payment requirement, for these properties, from 15%-25% to now requiring as little as 5% down of the purchase price!

Fannie Mae 5% Down Loan

EligibilityStill have to meet certain loan criteria like credit score, debt-to-income ratios, and financial reserves
Property TypesTwo-units up to four units (i.e. duplex)
Self-sufficiency TestNot required
Private Mortgage Insurance (PMI)Yes, but can be dropped after hitting 80% Loan to Value (LTV) or 20% equity on the property
Rental Income Used to qualify?Yes, minus 25% of rental income for vacancies

Why Multifamily Homes?

Fannie Mae 5% Down Payment for Multifamily homes includes duplexes

With the rise in housing costs, one great way to help offset the cost is via “househacking.” Househacking is when you live in a property and find a way to make additional income like renting out rooms. With this option, you can purchase a multifamily property, live in one unit and rent out the other. Therefore, you create additional income for yourself or can lower your monthly housing costs. This can also. be great for those looking to build multigenerational homes. Multifamily homes include duplexes, triplexes, quadplexes, and apartment complexes.

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Additionally, multifamily real estate has been a great way to enter the real estate investing game. Yet, one of the significant barriers, for beginner multifamily investors, has been the steep down payment requirements, which often exceeded 20% or more of the property’s purchase price! Saving up for the down payment, on top of additional costs (closing costs, repair costs, etc), can take time. As a result, you can miss out on many opportunities, and with this market, the properties can cost more.

The Benefits of the 5% Down Loan Option

Fannie Mae 5% Down Payment for Multifamily homes includes duplexes

Fannie Mae reducing their downpayment requirement to 5% offers several advantages for multifamily investors:

  • Lower Barrier to Entry: With a lower down payment requirement, it opens doors for new real estate investors.
  • Increased Access to Financing: It makes multifamily investing more accessible and achievable for a not just those who want to get into real estate investing, but to others.
  • Wealth-Building Potential: Multifamily properties can provide consistent rental income and long-term appreciation, which is a great way to build wealth.
  • Portfolio Diversification: Multifamily investments is a great way to diversify your real estate portfolio, This reduces the impact if one source of income falls through.

How to Get Started with the 5% Down Loan

New real estate investor calculating

Are you a new real estate investor and interested in taking the leap into multifamily homes? With the 5% down loan option, you can get into real estate investing with lower entry costs. However, there are several steps to take in order to benefit from this option.

Consult a Mortgage Professional:

First, before you start looking at properties, you want to consult with a lender. Start by consulting a mortgage professional or lender experienced in multifamily financing. They can guide you through the application process and provide details about the eligibility criteria.

Evaluate Your Financial Health:

Next, you want to know your credit score, debt-to-income ratio, and financial reserves to ensure you meet the eligibility requirements. You can fix any discrepancies or fix any issues as you wait for this new loan option to go live.

Identify Suitable Properties:

Now the fun part! Start “window shopping” around your area to see what opportunities are out there. This will help you understand how the market is and what you can expect to pay. Make sure these align with your goals and budget. Remember this option is only for two- to four-unit residential properties.

Secure Pre-Approval:

Finally, get that pre-approval! This pre-approval will give you your price point, which will help you budget for your purchase. As a new real estate investor, a pre-approval will make your offers more attractive to sellers. Not to mention, many real estate agents will not show you properties without a pre-approval!

My Final Thoughts

Overall, Fannie Mae’s 5% down loan option for multifamily properties is a game-changer in the real estate investment world. With lower barriers to entry, increased access to financing, and the potential for wealth building and portfolio diversification, this program presents a golden opportunity for those looking to invest in multifamily real estate. This is just another option available to those looking to “househack” as a new real estate investor. Which is one of the best ways to start! So if you’ve ever dreamed of getting into real estate investing, now might be the perfect time to jump in! Just be sure to consult with a qualified mortgage professional to get started on the right foot.

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