Timely news from Fannie Mae makes it easier to finance owner-occupied multifamily homes — timely in that it might open up the buyer pool for my Hilo listing of two identical homes on a single lot. Live in one home, rent the other (maybe keep the excellent long-term tenants!) and use the income from the rental to qualify and offset your mortgage payment.
Aerial two houses on a single lot for sale 111 Chong St in Hilo – Fannie May will finance this with as little as 5% down!
Lower Down Payment Requirement for Owner-Occupied Multifamily Property
Prior to this change, Fannie Mae required 15-25% down for owner-occupied 2-, 3- or 4-unit properties (whether detached or attached units). Now with as little as 5% down, a first time buyer with little cash can have a home for themselves plus a passive income stream. Previously the only low down payment option for owner-occupied, multi-family home loans were through FHA, and complicated to get approved.
Fannie Mae set the maximum loan amount allowed for these 2-4 unit properties is set at $1,396,800. By the way, the Fannie May 2024 loan limits for Alaska, Hawaii, Guam, and the U.S. Virgin Islands is already $1,149,825 for single-unit properties.
One caveat — there will be PMI (private mortgage insurance) which will result in a slightly higher monthly payment. But as your home increases in value, you should be able to demonstrate the improved loan-to-value ratio and eventually get the PMI dropped from your mortgage.
In case you were wanting to run the numbers…each of the homes on my listing has 5 bedrooms. Per the current County of Hawaii guidelines, the rent to qualify for the lower property tax rate on an affordable rental property with 5 bedrooms is $2,708/month in Hilo. If you were to become a Section 8 landlord, the County would pay you $3,611/month market rent!
How Do I Know if a Property Qualifies for the New Fannie Mae Multifamily Loan Program?
A couple of considerations as you are looking for property in Hawaiʻi where in can live in one unit and rent another 1-3 units. First, you will need to get an appraisal to justify the purchase price and loan amount, so be sure all of the units are legal – permitted and conforming to County building and planning code.
Secondly, they have to actually be full residential units. Here on Hawaiʻi Island (the Big Island), the County code defines an ʻohana dwelling as a residential unit with a full kitchen. Similarly, an additional farm dwelling on an ag-zone property might qualify…although sometimes underwriters get confused by our ag-zoned residential subdivisions.
Be sure to get preapproved with a local lender, and work with an agent knowledgeable about your options. Long-term rentals are a great source of passive income, and are being encouraged by the County in lieu of using your home to host visitors.
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