APM BLOG

Do you think owning multi-family dwellings—duplexes, triplexes, or fourplexes—is only for the 1%? Think again, because now all you need is 5%! 

As of November 18, 2023, Fannie Mae has lowered its required down payment on owner-occupied multi-family properties from between 15% and 25% to just 5%. That’s right: Five. Percent. Down.

This huge move will make homeownership and real estate investment more accessible to so many. Owning a single-family home is amazing, but the ability to purchase income-generating two- to four-unit properties has the potential to set your financial goals on fire!

Let’s dive further into Fannie Mae’s initiative and what it may mean for interested home buyers. 

Understanding Fannie Mae’s 5% Down Payment for Multi-Family Homes

There’s no question that the sizable down payment required for multi-family properties can knock most people out of the market. Fannie Mae’s requiring just 5% down for multi-family homes can eliminate this barrier—or at least greatly reduce it—allowing a more diverse range of investors to enter the market.

Eligibility criteria

As with any program, potential home buyers still need to meet certain criteria. This generally includes a good credit score, proof of stable income, and a commitment to occupy one of the units in the property as your primary residence.

Fannie Mae’s newest rules also eliminate the FHA self-sufficiency test, which determines whether the rental income from a multi-family property can cover its full payment (monthly mortgage, taxes, insurance, HOA, and so on).

Benefits for home buyers

This one’s pretty obvious: You can buy a multi-family property (up to a 4-unit home) for much less money down. This will allow some prospective homeowners to enter the market, while it may afford others more purchasing power.

In any case, it opens the door toward building equity, collecting rental income, and expanding your portfolio to include real estate investment. It also helps you get valuable experience as a landlord. 

If you find that this model works for you, there is always the potential to purchase other duplexes, triplexes, and four plexes down the road. Just remember, the down payment rule may not be the same, since this 5% down for multi-family homes program has the requirement that the owner occupy one of the units. 

Of course, buying a home for yourself that contains multiple units means you’re also creating additional family homes for those in your community, which is a win for everyone! 

Implications for the Real Estate Market

Increased market activity

Fannie Mae’s initiative should spur more activity in multi-family real estate investment. Prospective home buyers who were previously deterred by the high down payment requirements may now find themselves ready to invest and start earning rental income. 

This might mean increased competition in the market, which is why it’s always a good idea to act swiftly before the trend is gobbled up by the masses. 

Diversity of investors

The 5% down for multi-family homes option promotes a more diverse investor landscape. By lowering the financial barrier to entry, Fannie Mae is opening the door to a wider range of prospective home buyers. This includes first-time home buyers and those with more limited financial resources. This can lead to a healthier and more resilient real estate market.

Positive impact on neighborhoods

More individuals and families exploring the possibility of multi-family homeownership can positively impact neighborhoods. That’s because increased owner-occupancy can contribute to community stability, fostering a sense of pride and investment in the local area. This, in turn, could lead to higher property values and overall neighborhood well-being.

Considerations for Potential Home Buyers

Financial planning

While the 5% down payment option is a game-changer, prospective home buyers should approach their purchase with a solid financial plan. The down payment is an important part of the overall real estate investment…but so are the ongoing expenses, such as mortgage payments, property taxes, and maintenance costs. 

The end of the FHA self-sufficiency test is great. But you’ll still want to do your own calculations to make sure your projected rental income can cover your expenses and/or produce the type of returns you’re looking for. 

Market research

As with any real estate investment, it’s crucial for a home buyer to conduct market research. Prospective buyers should assess the potential for property appreciation and rental income, as well as the overall economic outlook of the area. 

Understanding the market dynamics will allow home buyers to make informed decisions and maximize the benefits of their investment to ensure that they are building equity in the long run. 

Big Opportunities for Home Buyers

Fannie Mae’s introduction of a 5% down payment option for multi-family purchases marks a significant step toward a diversified real estate landscape where many have access to the opportunities these investments can afford. Yes, the industry and home buyer process is evolving, and Fannie Mae’s newest option will certainly play a key role in shaping the future of real estate investment. 

Now more than ever, the dream of owning a multi-family property is within reach for those willing to seize this opportunity.