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Investing in a multifamily home can be a savvy way for a Chicago home buyer to live cheap, generate passive income, and ultimately build long-term wealth. In lending terms, multi-family homes with up to four units are considered residential, meaning you can purchase them with a a mortgage just like you would an ordinary single-family home.

When considering all your multi-family financing options, you’ll first need to determine whether you’re buying as an investor or buying as an owner-occupant. From a lending standpoint, the difference between being an investor and being an owner-occupant is significant given owner-occupant borrowers have a broader range of loan options, which we’ll dive into first.

From a lending standpoint, the difference between being an investor and being an owner-occupant is significant given owner-occupant borrowers have a broader range of loan options, which we’ll dive into first.

Owner-Occupant Multi-Family Borrowers

Although a typical home buyer might scoff at the idea of becoming a landlord, the benefits can far outweigh any potential risks involved with a multi-family home investment, especially in a city like Chicago where the condo and apartment lifestyle is all too common for a large percentage of its residents. So if you’re open to the idea of both buying a multi-family home and occupying one of the units at the same time, common financing options may include any of the following mortgage products:

  • FHA Loans
  • VA Loans
  • Conventional Loan

FHA Loans For Multi-Family Borrowers

FHA loans are issued by FHA-approved banks and lenders but are guaranteed by the Federal Housing Administration to protect the lender in case of default. Because of this guarantee, banks are generally willing to offer more favorable terms to the borrower, approve borrowers with lower credit scores, and also accept a lower down payment compared to a conventional mortgage. Typical qualifications for an FHA mortgage include:

  • A credit score between 500 & 579 with 10 percent down
  • A credit score of 580 or higher with 3.5 percent down

In addition, you’ll also need to provide pay stubs, W-2s, tax returns, and other financial documents, including leases and rent history if you’re counting on rental income to help you qualify for a loan.

VA Loans For Multi-Family Borrowers

Military service members, veterans, and their spouses can all quality for a U.S. government-backed VA loan. And to the surprise of many, VA loans can also be used to finance multi-family homes with up to four units, along with single-family homes. Advantages to VA loans are plentiful and include:

  • No down payment required
  • No private mortgage insurance (PMI)
  • No minimum credit score
  • Funding fees, which range from 1.25 to 3.3 percent, can be financed and included in the loan.

Conventional Loans For Multi-Family Borrowers

The process of applying for a conventional mortgage to finance a multifamily home purchase is essentially the same as financing a single-family home purchase. Conventional mortgages for a duplex, two-flat, three-flat, or four-flat adhere to the guidelines set by Fannie Mae and Freddie Mac and lenders will consider your credit score, credit history, income, assets, and other debt. To qualify, you’ll likely need a downpayment of at least 3%, a debt-to-income ratio of lower than 43%, and a minimum credit score of 620.

About the author

I am from Chicago, IL and I have been lending in this area for 20+ years. My team and I strive to give you an enjoyable mortgage experience while providing you the best programs and rates! I am also offering a FREE mortgage analysis to determine if refinancing is right for you.

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