Image: Fannie Mae headquarters in Washington, D.C.
In early October, Fannie Mae, the government-sponsored entity that provides mortgage financing, announced changes to its policy related to conventional home loans for owner-occupied multi-family properties. This unexpected reversal of longstanding rules creates a great investment opportunity for anyone looking to purchase an existing or new construction multi-family property in Cheyenne.
Starting on November 18, 2023, Fannie Mae will allow a lower 5 percent down payment to purchase a two-, three- or four-unit home that is occupied by the owner. This move revises the previous policy which required 15-25 percent down payments for duplexes, triplexes and fourplexes. By reducing the initial financial barrier, Fannie Mae hopes to make homeownership more accessible for a greater number of individuals and families.
If you are interested in purchasing a multi-family home to live in while collecting rent and gaining landlording experience, read on for more details about this change!
Previous 15-25 Percent Down Payment Requirement Repealed
Fannie Mae’s announcement that it will significantly reduce the down payment requirement for owner-occupied transactions is expected to aid many prospective homeowners who had previously been dissuaded by the higher down payments necessary to buy these properties. This change aligns with the association’s commitment to increase access to affordable housing across America by increasing mortgage availability.
This means exciting changes for prospective buyers of multi-family new construction as well as existing multi-family inventory. Previously, borrowers were limited by lower loan-to-value ratios, necessitating larger down payments. For example, a $1 million fourplex required a $250,000 down payment to achieve a 75 percent loan-to-value ratio. But as of November 18, only 5 percent down will be necessary, a difference of $200,000 in this instance. Here are other examples of how an upfront payment will be reduced:
| 2-Unit Property | 3- to 4-Unit Property | |
| Purchase Price | $600,000 | $900,000 |
| Minimum Down Payment (prior to 11/18/23) | $90,000 (15%) | $225,000 (25%) |
| Minimum Down Payment (on 11/18/23) | $30,000 | $45,000 |
| Change in Down Payment | -$60,000 | -$180,000 |
Maximum loan amounts do apply and are capped at $929,850 for a two-unit property, $1,123,900 for a three- unit property and $1,396,800 for a four-unit property. Buyers who make a down payment greater than 5 percent could purchase even more expensive properties.
What the Changes Mean for Buyers
The new Fannie Mae guidelines mean much more flexibility in multi-family purchases. Currently, the only low down payment loan option for non-military multi-family buyers is an FHA loan. Qualified buyers can own a two-, three- or four-unit home for 3.5 percent down. However, a three- or four-unit home must pass the FHA self-sufficiency test for positive cash flow. This means that a property is not eligible for FHA financing unless its maximum rental income — after factoring in a vacancy factor of 25 percent — exceeds the payment. With mortgage rates at their highest in decades, almost no property can pass the FHA test.
Now that Fannie Mae has eliminated the self-sufficiency requirement for three- and four-unit properties, many buyers that were previously ineligible now have a chance at both homeownership and real estate investment.
Another exciting update to Fannie Mae’s guidelines is the use of potential rental income to qualify for a mortgage. This means that you can include the future rental income from the property you want to purchase as part of your overall income, increasing the likelihood that you will qualify for the mortgage loan.
Reasons for the Changes
According to its announcement, Fannie Mae wants to increase access to credit and expand affordable rental housing. With mortgage rates and rents on the rise, many buyers are struggling with high housing costs and looking for alternate ways to afford a home. Some have resorted to renting out a room to reach this goal. For younger and prospective homeowners looking to use rental income to offset their mortgage payment, this guideline revision is a golden opportunity.
In addition to the opportunity to own real estate and earn rental income, multi-family properties can be an excellent housing solution for multigenerational families who want to live in close proximity to each other.
When Homebuyers May Apply
Over the coming weeks, those looking to invest in multi-family housing such as duplexes, triplexes and fourplexes should gather their employment, income and asset documentation. While applications can be submitted now, lenders cannot issue preapprovals and buyers cannot make offers due to a number of unknowns that will not be resolved until the Fannie Mae update is complete.
Gateway Is the Area’s Most Trusted Builder of Multi-Family New Construction
The new Fannie Mae program caters to those looking to invest in multi-family housing such as duplexes, triplexes and fourplexes. By increasing the flexibility of financing options, the organization hopes to bridge the gap for those who have traditionally been underserved by the mortgage financing system.
If you have money to invest in the real estate market, learn more about the benefits of purchasing a multi-family home and why Cheyenne is a great market. Gateway Construction, LLC specializes in commercial construction in Cheyenne and surrounding areas and would be honored to serve as your builder of choice. Contact us to discuss your project and get connected with our preferred lenders by calling (307) 632-8950 or contacting us online. Let’s start building your future today!
