If you plan to live in one unit of the multi-family property, you may be eligible to finance it through a Federal Housing Administration (FHA) loan. These loans are backed by the government and can be used for properties with up to four units.
FHA loans can be suitable for:
People with less-than-perfect credit
Buyers who don’t have a large down payment (10%+)
For owner-occupants, the best financing is an FHA loan because even when you are purchasing a multi-unit building you only have to make a 3.5 percent down payment. Investors must use conventional financing with a minimum down payment for a duplex of 25 percent. For a property with more units, they need a down payment of at least 30%+
Lower down payments than conventional loans (3.5% - 5%)
Low closing costs
FHA loans are are not issued by the Federal Housing Administration. They are issued by FHA-approved banks and mortgage lenders, and the FHA guarantees a portion of loans, protecting the lender in case of default. Thanks to that guarantee, lenders are willing to offer more favorable terms, extend mortgages to borrowers with lower credit scores, and accept smaller down payments.
FHA loans are probably not right for you if you have excellent credit and enough money saved for a 10 to 25 percent down payment. They may be more costly than conventional mortgages.
But if your credit score is low or you have a smaller down payment, an FHA loan may be the cheapest for you. For borrowers with less-than-perfect credit, FHA loans are typically easier to get and have more favorable terms than conventional mortgages without government backing.
FHA Credit Scores
For an FHA loan with 3.5 percent down, you’ll need a score of 640 or higher (this has gone up post Covid-19).
Clearing CAIVRS database
You won’t qualify for an FHA loan if you owe the government money in back taxes or have defaulted on previous government loans. If you have such debts, your name may appear in the Credit Alert Interactive Reporting System (CAIVRS) database, and you will need to clear the debts to become eligible for an FHA loan.
FHA Loan Docs
When you apply, lenders will ask you to provide pay stubs, W-2s, tax returns and other financial documentation when deciding whether to approve your loan. If you’re counting on rental income to help you qualify, you’ll need to provide leases or other documentation as well.
For FHA loans, different jurisdictions have their own vacancy factor that reduces the amount of rent that can be added to the borrower’s qualifying income. For example, in some places, borrowers can add $750 to their gross monthly income if they are receiving a rent of $1,000.
PadMint's Owner-Occupied Marketplace
We've made it easy for users to look at all the listings on the market to see which one's work for FHA financing. Simply visit the listings page, go into the filters, and click the "Owner Occupied" toggle ON. You will see all the 2-4 Unit buildings in Los Angeles that qualify for FHA financing as well as the down payment needed. If the property doesn't qualify for FHA financing, we provide what type of financing is available for these properties. We have made it easy for people to identify their owner occupied investment opportunities!