If you are looking to buy a Los Angeles multi-family property with a loan for investment purposes you need to know about the mortgage loan options available. A multi-family property mortgage loan is just what it sounds like – a home that has more than one unit. If you have 3 or 4 units in your building, this type of financing can be beneficial because there may be less risk involved because if one unit goes vacant, the others could help cover costs. There are also tax incentives for buying multi-unit properties which might make them worth considering as an investment opportunity.
What is a Multi-Family Property Mortgage?
The term multi-family home usually refers to properties with two to four units, which qualify for traditional residential mortgages. Multi-family homes can also include larger properties with five or more units. These are considered commercial properties and are subject to different mortgage requirements. Mortgages for commercial properties are generally based on the profitability of the property rather than the borrower’s personal income. The mortgage options for multi-family properties depend on whether the borrower intends to live in one of the units. Borrowers who live on the property can qualify for mortgage options for primary residences, like FHA loans with low down payment requirements. Borrowers who want to purchase a multi-family property solely as an investment will likely be subject to stricter mortgage requirements. Another important aspect of loans for multi-family properties is that borrowers can usually count their expected rental income toward their income for the purpose of qualifying for the mortgage.
What Are the Requirements for a Multi-Family Property Mortgage Loan for Residents in Los Angeles?
Borrowers who plan to live in one of the units of their multi-family property can benefit from the lower down payments and lower interest rates available for mortgages for primary residences. These borrowers can qualify for FHA loans, which require as little as 3.5% for a down payment.
What Are the Requirements for a Multi-Family Property Mortgage for Investors?
FHA and VA loans require the borrower to live in the home, so investors renting out the entire property are not able to use these loans. This means that for investment properties, borrowers will need to make larger down payments of at least 15% for duplexes and at least 20% for three or four unit properties. Non-resident investors may also have higher credit score requirements and higher interest rates.
Does Rental Income Help Borrowers Qualify for a Mortgage?
Rental income does count toward the borrower’s income. This can either be actual income if there are current renters at the property or the market rate for rent based on an appraisal. Lenders subtract 25% from the total rental income to account for vacancies and maintenance expenses.
What Are the Requirements for Commercial Mortgages?
For larger commercial properties, lenders usually consider how much profit the property can generate through rent as the main factor. Lenders look at numbers like loan-to-value ratio, which compares the value of the loan to the value of the property, and debt-service coverage ratio, which compares the income and debt expense of the property. Depending on the type of loan, the borrower’s credit history may be considered as well.
Why is the Property Appraisal Important?
The property appraisal is especially important for multi-family property mortgages because the market rates for rent and the value of the property set by the appraiser determine how much rental income counts toward qualifying for the mortgage. Accurately assessing the value of a multi-family property can be challenging because in most areas there are few comparable property sales to guide the appraisal.
What Are the Current Rates for Multi-Family Property Mortgage Loans in Los Angeles?
If you plan to buy a multi-family property, discussing your mortgage options with the lending professionals at Advanced Funding Solutions is a great place to start. Contact Advanced Funding Solutions, Inc. for a quote.