As a first time home buyer, you might think that you can only own a single-family home. But what if we tell you that you can buy your first home that pays for itself and makes you money as well?
But can you buy a multifamily home as a first time home buyer? A big YES. Multifamily property is one of the smartest financial choices that you can make as a first time home buyer. It has far more property value than single-family home.
We will go through the details one by one in order to make it easier for you to make a decision. Let’s get started!
What is a Multi-family Home?
Multifamily home is a residential property with home up to four separate units; for instance, buy a duplexes, triplexes, or fourplexes. The only catch is that you can house hack, meaning you live in one unit and rent out the rest to others.
This setup is beneficial as multifamily loan for your home may still be financed residentially. You can access special loan mortgage programs if you’re a first-time buyers, like FHA mortgage loans, and other conventional loans.
Why Choose Multi-family Property as a First-Time Buyer?
More and more people are buying multifamily homes as first time buyers due to several reasons. Some of the reasons to buy home with up to four units are stated below:
- Rental Income: You live in the property almost free of cost, and the rent you collect from other units pays for your monthly mortgage.
- Wealth Building:You are not only living freely and the rent is paid by the tenants helps to pay the mortgage, you also build equity from the income-producing asset called your multifamily home.
- Tax Benefits: Multifamily homes are mostly subject to lower mortgage interest, maintenance, and tax deductions.
- Real Estate Investment:It is a very low-risk and practical way of becoming a landlord and investing in a multifamily property and real estate industry at the same time.
For long-term financial stability along with having a roof over you head, multifamily properties have a win-win for both of the worlds.
Loans that Let First Time Home Buyers Purchase a Multifamily Home
It is not necessary that all of the programs and loan options for first-time buying allow you to make such a purchase, but we have jotted down several types of loan programs that are first-time buyer-friendly to purchase their multifamily home.
FHA Loans
FHA loans or Federal Housing Administration loans are one of the most popular first-time homebuyer programs for buying a home. You can qualify for an FHA loan can help with as little as a 3.5% down payment and a credit score of 580 or below.
In addition, FHA loans are available to you if one of the multi-unit property is your primary residence. FHA is a smart choice if you don’t have a lot of funds for the down payment and still want to generate rental income instantly.
Fannie Mae
Now, Fannie Mae allows first time buyers buying a multi-unit property has only a 5% down payment requirement. It has more flexible terms and lower mortgage insurance costs than some FHA loans. If you have a good credit score and stable monthly income, this could be better than FHA loans for you.
VA Loans
If you are a veteran or active duty service member, VA loans allow you to purchase multifamily homes with zero down payment. VA loans to finance multi-family homes has only rule for you: live in one of the units.
How to Qualify For A Multifamily Home Loan as First Time Home Buyer
Unlike buying a single-family home, if you are looking to buy a multi-family property, it requires a few extra steps, but they are not too difficult to cover.
You qualify for a loan to purchase multi-family home as a first-time home buyer if:
- Your credit score is at least 580-620
- You can pay a down payment of 3.5 percent with FHA, 5% with Fannie Mae, and 0% with VA.
- You have a debt to income ratio of typically under 43%
You can approve your loan requirements by using the projected rental income from other units on paper.
Can You Buy A Multifamily Home If You Have Zero Down Payment?
Yes. If you are eligible for the VA loan, or you live in a state where you get first-time buyer assistance programs. Most of these programs cover part of the down payment, closing costs, or both.
Your family member’s gifted funds can also be used to cover some or all of your upfront costs. If you combine that with house hacking, you can significantly decrease your initial cost.
Multifamily Home Buying Process
Can you buy a multifamily home as a first time home buyer easily? Buying a multifamily home is not as intimidating as it sounds. You can follow these simple steps to get started:
- Credit Score: Review your credit scores and get your finances in order.
- Get Pre-Approved: Getting pre-approved for a loan from a mortgage lender who understands multifamily financing.
- Trusted Realtor or Real Estate Agent:Working with a trusted agent who knows the local market and investment properties is a huge win beforehand.
- Shopping: Start shopping for duplexes, triplexes, or fourplexes that have huge potential for renting.
- Run Numbers: Observe, compare, and calculate expected rent vs the expenses you are going to incur.
- Offer:Make an offer and inspect properties that you like.
- Close:Finalize your loan and close the deal.
- Move In: You’ll need to move into one of the units and start preparing to receive tenants and charging them rent to cover your mortgage costs.
Do you think you need guidance throughout the process? Nitin Kumar is here to help you buy your dream home, navigate throughout the process of buying your multifamily home, along with critical insights and support on property management.
Pros and Cons of Buying a Multifamily Home
Before you proceed to purchase a property(multifamily home), you must know all the benefits and drawbacks related to your choice.
Pros
- Rental income pay your mortgage loan
- Building equity and wealth faster
- An efficient way to invest in real estate as a beginner
- Tax deductions
Cons
- You are also a landlord, incurring costs
- Shared walls and common areas
If you look at the pros and consist, for a first time home buyer, the pros outweigh the cons, especially if you wish to live in that property for a few years.
Conclusion
So, can you buy a multifamily home as a first time home buyer? Yes, if you are serious about building equity and entering real estate investment as a beginner. Click here to let us help you make the smartest choice.
With low to zero down payment, tax deductions, low to no monthly mortgage payment, and rental income generation, you can have access to loan programs that make it very easy to own a multifamily home with a powerful combination of security and opportunity.
Frequently Asked Questions
Q: How To Buy a Multifamily Property With No Money?
A: Yes. It is possible if you qualify for a VA loan (for veterans or active duty officers) or for first-time home buyer assistance program offered by your state. Some lenders also allow gifts from family members to cover some to all of your home’s upfront costs.
Q: How Much Money Do you Need to Buy a Multifamily Property?
A: It depends on which loan program you qualify for. For FHA loan to buy multifamily properties, you need a 3.5% down payment, for Fannie Mae, a 5% down payment, and 0% for VA loans if you are eligible.
Q:Should I Buy a Multifamily Home For my First House?
A: Yes! If you plan to become a landlord and live there for a few years, multifamily home is a smart choice to make. It not only allows you to generate rental incomes, but also offsets your mortgage monthly payment, builds equity faster, and opens doors to real estate investment.
