Multifamily housing is a type of residential property that has more than one unit in the same building.
Multifamily housing can be divided into 2 sections:
2-4 units: duplexes, triplexes, and quadruplexes (4 units)
5+ units: apartment buildings
In certain areas, such as the New York and Los Angeles metropolitan areas, many homes which appear to be single family residences for all intents and purposes are actually legally 2 unit properties, or duplexes, which have been converted into single family living spaces internally but are still in the eyes of the local housing board a multifamily property.
FHA Loans are a good option when looking to purchase a 2-4 Unit primary residence.
The property with 2 - 4 multi units are considered as a residential property. Thus there are more opportunities and easier to finance this type of property through regular mortgage lenders.
However, the property with 5+ units are considered as a commercial building. Then the broker usually has to go outside of boundary to look for fund from commercial lenders.
Some loan programs allow existing rent on mutli-family properties to be included as your income. You'll need to show that the units have leases to prove the rental income. However, the rent may be discounted by up to 75% per underwriting guidelines.
Multi-family mortgages usually have stricter qualifying criteria. While a homebuyer can qualify for a single family residence loan with certain credit scores, the same home buyer would need higher credit scores to qualify for a mortgage secured by multi-family houses. In some cases he may have to put up a bigger down payment and borrow at a lower loan-to-value ratio.
Conforming loan limits increase for Multi Family dwellings. The greater the number of units (to a limit of four) the greater the conforming loan limit will be in the properties respective state.
Generally the more units a property has the tougher the financing will be. The requirements are usually a little more strict with more units to a property and the rates are usually a little higher to go along with the home loan too. One reason for this is due to the fact that multi-unit properties are a higher risk to a lender. Many people buying multi-unit properties are relying on rental income to be produced from these properties, and if they go unrented for any period of time this may put the homeowner into a bind and could cause some problems with making their payments on time or even at all.
The ability to secure 100% financing usually stops at 4 unit buildings. Any building that has 5 units generally require a down payment of up to 20%.
Generally multi unit financing will require a larger downpayment. Also, lenders will look at the income produced in making a lending decision.
Duplex type homes are looked as multi family. Their is a variety of duplex homes from 2-4 units.