Mortgage Financing Requirements For Owner Occupied Investment Properties

From time to time ActiveRain Members will request I write a blog addressing mortgage financing issues they are encountering, or issues with Buyers lack of understanding of mortgage financing requirements for different types properties.  Recently Ginny Gorman asked me to write a blog on mortgage financing requirements for investment properties.  There is a lot to cover in this topic so I will be splitting it into two blogs.  The first blog will be on Mortgage Financing Requirements For Owner Occupied Investment Properties.  The second blog will be on Mortgage Financing Requirements For Non-Owner Occupied Investment Properties.

Mortgage financing requirements for owner occupied investment properties are stricter, and have additional requirements then mortgage financing requirements on properties which are going to be only occupied by the Borrower.  In fact there are even additional requirements as the number of unit increase on properties.

Properties which have 1-4 units are classified as residential properties.  Properties which have 5 plus units are classified as commercial properties and require commercial financing witch have guidelines much different than those for residential financing.  In these two blogs I will only address financing for residential properties.

If A borrower is purchasing a 2-4 unit property and they will be occupying one of the units, they can obtain mortgage financing through VA, FHA, and Conventional Loan Programs.  USDA/Rural only finances single family residents which are going to be occupied by the borrower.

Of the loan programs above which allow for mortgage financing on properties with 2-4 units which the borrower will occupy one of the units, VA is the only one who does not add any additional requirements than they do for single unit properties.  VA does not:

• Require reserve funds
• Allowed Seller Paid Costs are the same, 4%
• All required closing funds can be gifted.

So on VA mortgage financing all the guidelines are the same for 2-4 unit properties as it is for 1 unit properties which the Borrower will occupy.  However, the mortgage financing requirements for FHA and Conventional Loan Programs are much stricter for 2-4 unit properties which the borrower will occupy one of the units, than they are for 1 units properties.  Also besides the FHA, and Conventional Loan Program Guidelines, Investors (those who Lenders sell loans to after they are closed) will also impose additional requirements on 2-4 unit properties.

For example, some of the FHA and Investor requirements maybe:

• 3 months reserved funds on 3-4 unit properties.
• Reserved funds cannot be gifted.
• Reserved funds cannot be contributed from the Seller.
• Only 75% of the income from rented units maybe used.
• On 3-4 Unit properties the Principle, Interest, Taxes, & Insurance (PITI) cannot exceed the rental value of all the units.

Conventional Loans have even stricter requirements imposed by Fannie Mae, Freddie Mac, and Investors.  Some of these requirements are:

• 80% maximum financing of the selling price or appraised value on 2 unit properties, whichever is the lowest.
• 75% maximum financing of the selling price or appraised value on 3-4 unit properties, whichever is the lowest.
• 5% of the down payment funds HAVE to be the borrower's own funds 2-4 unit properties.  These funds cannot be gifted.
• Reserves on 2-4 unit properties are determined by Automated Underwriting.
• On Fannie Mae backed loans, an additional 1 point Loan Level Price Adjustment (LLPA) is applied.

The above mortgage financing requirements for FHA and Conventional Loan Programs for Mortgage Financing Requirements For Owner Occupied Investment Properties, are not a complete list, but they are the most common.  Tomorrow I will provide the mortgage financing requirements for investment properties which the borrower will NOT occupy any of the units in the property.

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com