Not everyone wants to be a landlord, or even own their own home. There are a lot of ways to live your very own "rich life", as Ramit Sethi would say. If you live in a city with very high and volatile real estate pricing you might treasure your flexibility more than holding your home as a savings account for your retirement. Personal residences are probably best thought of in many cases as a savings account. In many cases, especially over the last few years, personal homes have been seen as a high yield investment. Depending on location, timing, and many other factors it is simply best to consider it a savings account where you aren't giving away all of the money you need to live sheltered. On the other hand, investment properties can be considered a much higher yield investment. Now here is a major distinguishing factor - personal homes may allow you to put down 5%, or even less in some cases, while investment properties will likely require between 15% to 25% in order to secure financial leverage from a lender.

With interest rates being much higher than in recent years a lot of personal home buyers are waiting for conditions to chance, and as rates will eventually go back down the competition and pricing will likely experience another uptick. Investors are often less likely to stop investing because rates are higher, someone else is paying the mortgage, and the interest rate is a margin on a spreadsheet in large part. Here is where the conversation gets interesting for future real estate moguls! Fannie Mae is paving the way for your homeownership dreams with a game-changing announcement. Starting November 18, 2023, Fannie Mae is introducing a groundbreaking opportunity: a mere 5% down payment option for owner-occupied 2-, 3-, and 4-unit properties. That means living on a property that also contains rental units.

This policy shift signifies a significant leap, making the prospect of owning multi-family homes much more affordable and within reach. Thanks to Fannie Mae’s decision, more people can now step into the world of income-generating properties.

This change applies to standard purchases, no cash-out refinances, HomeReady, and HomeStyle Renovation loans for owner-occupied properties.

Now, first-time homebuyers and those looking to counter high mortgage rates can benefit from a conventional loan, using rental income to ease a portion of their mortgage burden.

With the loan amount cap raised to $1,396,800 for 2-4 unit homes, buyers can now explore larger projects in a manageable way. Plus, the elimination of the FHA self-sufficiency test for 3-4 unit properties ensures a smoother journey for buyers seeking pre-approvals for multi-family housing.

But what exactly is the FHA self-sufficiency test for 3-4 unit properties? FHA Rule 75 stipulates that 75% of the rental income must surpass the monthly mortgage to consider the property self-sufficient. This percentage should at least cover the mortgage payment, known as PITI (Principal, Interest, Taxes, and Insurance).

Do you find yourself intrigued?! Well I can't blame you if you are, and I recommend letting me help you connect with a local mortgage expert to see what your options for something like this might be. I urge you to get pre-qualified for a loan before you start making plans to do something like this - do not put the cart before the horse. Now, if you can't help yourself and you are dying to jump in and see what kind of properties may fit the bill you can check out the search that I've created below. This is your queue to chase your dreams, whatever they may be!

-Grady

Active Multifamily Listings