Cashing in on Fannie Mae's 5% Down Payment Loan on Multifamily Homes

Learn about Fannie Mae's 5% down loan program for buying multifamily homes and the requirements you need to meet to qualify. Find out how this program can help you invest in real estate.

Game-changing news!  Fannie Mae has slashed the down payment requirement for multifamily properties to just 5%! Ready to make your real estate investing dreams a reality? This episode is your crash course of the ins and outs of this new change! Who's eligible and how can you use it to gain financial freedom and build generational wealth.

I also go into the advantages of buying a multifamily as your first home. I use my first duplex as an example on how you can use this loan to either lower your housing costs or start investing in real estate. 

Transcript

Speaker 1: 0:00

This new 5% down payment for multifamily homes like duplexes and up to like four units. It's a huge game changer because it makes it more accessible to people that are trying to get into real estate investing or even just help with those housing costs by helping lower them, because you can house hack these properties and, you know, live in one and rent out the other side, and that is a huge help. Hola, welcome to the Money Cheese man podcast. I am your host, violeta, a first generation Mexican immigrant. I am a real estate investor and business owner, but let me tell you, just like other first generations, I was not taught much about personal finance and I mean, needless to say, I was bien perdida. I was so lost and I struggled a lot in my personal finance journey and that's why I created the Money Cheese man podcast where each week, I bring you the cheese man on how to manage and grow your money and other money talks to help you to kick ass with your finances. Alright, so let's get into this week's Money Cheese man. Hola, hola, welcome to another episode of the Money Cheese man podcast, and this week I want to talk about this new requirement that Fannie Mae came out with and if you've been following me on my Instagram or my TikTok, you kind of maybe already saw what you know about it a little bit about it so I want to go into a little deeper of you know what Fannie Mae's new 5% down payment for multifamily homes, what it is, what's about, and you know how you can use it to. You know, get into real estate investing and start building that multiple sources of income, build that financial freedom and, you know, start building that generational wealth. So, as you know, I am a real estate investor and I advocate for and try to motivate others to start real estate investing because you know it is one great way to start building that wealth and especially with those multifamily properties. But you know, especially now, with like these interest rates and all that stuff, it can be, you know, out of reach for a lot of people because sometimes you are required to have, you know, like that, 15 or 25% down payment, especially for the multifamily properties, along with some other requirements, and so it can make it hard for someone that is like trying to get into it. It could set them back because now they got away and try to save up for not only the down payment but the other requirements that sometimes you have to deal with when you are looking into purchasing something like a multifamily home.

Speaker 1: 3:10

So first things first is who the hell is Fannie Mae? Well, fannie Mae is actually a kind of government sponsored enterprise. They used to be, you know, just like a company, but then the government kind of like took it over, but basically they buy mortgage loans and they give a guarantee for those loans which you know the lenders like, because then that means it reduces their risk, because now the the, the loans that they have that they, you know, give out, they're backed by Fannie Mae and it makes these loans a little bit more attainable and a little bit affordable because Fannie Mae is backing up these loans. So Fannie Mae themselves does not, you know, they do not originate loans or lend out money themselves. What they do is they acquire these mortgage loans that are made by other lenders and then they give out these mortgage backed securities and that ends up attracting investors. So that's how they are involved and by doing so they can help, you know, get products out there that helps loans become more affordable and available. But they still have, like their own requirements that they put out on what they will accept and stuff like that. So that's the basic gist of who Fannie Mae is.

Speaker 1: 4:42

So why the change? Like you know, words up with Fannie Mae, because all of us are in are they switching up from asking 15 to 25% of a down payment for a multifamily home, then going to, you know, asking for 5% down payment. Well, apparently, you know they want to help combat the, you know, housing affordability issue that we're dealing with today, and you know they understand it's like crazy and it's really hard to, you know, purchase a home and be able to afford it. So they want to encourage people to go for multifamily homes and have that option to be able to buy a property for them to live in but also be able to house hack it. And you know, not only one reduce their you know housing costs, but also, you know, provide housing for other people and you know, hoping that. You know it's going to make housing more affordable and easier to get. So with that, they decided to lower down the requirement for a multifamily home to 5%. Now, this is going to come into effect a little bit after November 18th, but you can actually start looking into it and trying to figure out if you will be eligible for this loan so you can start reaching out to lenders and start learning about this new requirement.

Speaker 1: 6:18

So let's talk about the new requirement. You know what does it apply to? Are you eligible? Like you know what? What's the details so far? There's a few things that have come out, like, as far as eligibility, you still have to meet, like there's certain loan criteria like credit score, your debt to income ratios, and you know that you still have to have financial reserves, depending on if it's like a two, three or four unit property, and that basically just means that you have enough of kind of like an emergency fund of like one, two or three or, depending on what it is, sometimes even six months worth of financial reserves in case something happens. So you might still be required to do those things, which is why it's like you could start reaching out to lender and start figuring that out.

Speaker 1: 7:14

So, for the property types, these this loan is going to be for, like two units, up to four units, you know, multifamily homes like a duplex or like a triplex or even a small apartment that's, you know, has four units. Now, the thing is that you do have to live in these properties, so it's not meant for an investor that is looking to buy property that they're not going to live in. Because, again, the goal of you know, fannie Mae, with this reduced down payment is to make housing more affordable and to help reduce housing costs for people. So this is for house hacking. Which house hacking is? Basically you live on one unit and then you rent out the other units, and you know that's basically house hacking. So what about the self-sufficiency test, which usually applies with like things like the FHA loan, and with this one, apparently, it's not going to be required and self-sufficiency test is just basically means that they want the property to have a positive cash flow. But with this, 5% down payment is not required, meaning that you don't have to have a positive cash flow, because, again, the goal is to help reduce housing costs so you could get into a duplex or whatever and you pay half, and you know the other unit may just make enough to maybe half your mortgage or what, or pay some of it, but you're not necessarily having a positive cash flow at that time. And you know, some people just want a multi-family home to, you know, maybe live on one side and maybe, like their parents, live on the other side, or maybe their kids. They want to do a multi-generational type of home. But sometimes it was hard to try to get a property like this because they had to have that self-sufficiency test where they had to show positive cash flow. And here it's not going to be required, so that's a positive All right.

Speaker 1: 9:29

What about private mortgage insurance? You know PMI. This is an insurance that you pay on top of, like, your mortgage payment because you put less than 20% down on a property. Now with an FHA loan, you can, you know, buy a property with as little as like 3.5%, I believe, and you know, obviously that's less than the 20%. So a lot of people will pay PMI. Now the problem with an FHA loan is that you are going to continue paying that PMI throughout the life of that loan. So as long as you keep that FHA loan, you're going to keep paying that PMI. There's no way to like really get rid of it when, unless you switch over to, like, a conventional loan or, in this case, even though you're going to pay PMI with the 5% down payment from Fannie Mae, once you, your loan to value drops down to 80% or you know, basically that means that you have 20% of equity in the property, then you could drop that PMI. So another great thing is that you're going to be able to use rental income to be able to qualify for the loan. So once you find a multi-unit property let's say you find a duplex and one side is already rented out you can use that rental income to help you qualify for the loan. Now they're going to deduct the 25% from the rental income for vacancies to account for that, but that's still very good because that will help you qualify by using that rental income that it's already doing. So this new 5% down payment is a great option.

Speaker 1: 11:25

But I know there's two other options that are out there and so like, how does it compare to this new requirement? And you know I'm not going to get too into each one, so I'm just going to briefly kind of like compare them. And that's the FHA loan that you can put as little as 3.5% down. And then you have the VA 0% home loans, and those two are also great options. However, with the VA home loan, you know you put you put 0% down and I actually used it three times already and you can buy a multifamily home I think it's up to four units as well. The problem is with that one you do have to be a veteran and or active duty. So if that does apply, that is a great option. But if you aren't one of those, then you still can use the FHA loan. However again like how I mentioned earlier is you have some cons where you will pay PMI and you can't get rid of it until you kind of like refinance or go into another loan like a conventional loan.

Speaker 1: 12:40

The other thing is and it's actually the same with both the VA home loan and the FHA loan is that you're kind of limited on the types of properties that you can get, not to mention both the VA home loan and the FHA loan. They have like a lot of extra things that they want you to get, like that you have to require, like, for example, you have to have a termite inspection, which you know. In my mind it's a good thing, but whenever you go by property, and especially when houses were flying off the shelves, that was one of the things that kind of like deterred sellers from you know selling their properties to you know someone that had an FHA loan or sometimes even a VA loan. Luckily I didn't deal with that because, especially with this house, like you know, the guy was a veteran as well and so it kind of like actually benefited me. But you know, whenever the houses were flying off the shelves they saw FHA loan and they were like no, and so with that, you know, with an FHA loan or a VA loan, you're limited, you know, on the types of multifamily properties that you can get, because they have to meet certain criteria, you have to take extra steps and all that.

Speaker 1: 14:05

So with this new down payment option with the FHA loan, then you could get a little bit more of leeway on how distressed a property can be. Now, you know, still not going to be able to like get like one that's like falling apart, but you'll be able to get a fixer upper easier. And, you know, start building that appreciation as well as you rehab it, you fix it up right. So one of the things that I've been seeing like on social media as people start posting about, you know, this new 5% down is. You know the idea is like okay, you know you're putting 5% down like that is going to have you underwater. What about the mortgage payment and stuff like that?

Speaker 1: 14:54

And the thing is you have to understand what your goal is because, again, the main goal of this you know of Fannie Mae lowering down the requirement is to give opportunity for people to buy a property like a multi-family, like a duplex, and they can use that to help reduce their housing costs. So if you're thinking it of that way and you know, even if you want to again, like earlier I said that maybe you want to do a multi-generational home, you buy a duplex, you know your parents live on one side, they pay for that and you live on the other side and you'll split the mortgage. You know that could be a great option. Now for those that are looking to get into real estate, investing by, you know, house hacking. A multi-family home is, you know, is this still a great option and in my opinion, like after you know doing some quick math, I can see, you know, making this work is just, you know, understanding and doing your homework of. You know what your market looks like, what the properties that are available in that area are, and you know what you are willing to kind of compromise with, because to make this work, you might not get, you know, a nice, good property you're going to have to get, maybe a distressed property that you're going to have to put some work into, or you know it might not be in the best neighborhood or your ideal neighborhood that you're looking into, but again, you know this is a property that you know. You just, you know, suck it up for like a year, whatever the requirement is right. I'm assuming it's a year just because that's usually the case, right, and you know, just doing your homework and running the numbers, which you know, by the way, I do have a property calculator, rental property calculator, that can help you figure this out and I'll link it in the the notes, which is what I used to kind of figure out this scenario.

Speaker 1: 17:06

So let's use one of my duplexes that I purchased for 113 K About a year ago and you might be like, you know it's a duplex, it's a two bedroom duplex, two bedrooms on each side, and you might be like, well, you know 113 K, like, come on, I'm not going to find that in the area that I'm investing in, that's kind of like you could find those. I mean, I looked yesterday trying to find, you know, because I'm always looking in the area and they're about 120 K About, but with this one it was the same thing, was listed for 124 K and I brought it. You know I negotiated down to 113 K Now with this duplex. Let's say I was at the 8% of interest that is going around about average right now and I put a 5% down payment like I am still good, and again, with the scenario you have to live in the property Now, again, you do have to make some.

Speaker 1: 18:10

You know compromises and these duplexes, you know are older, they need some, you know they need some repairs and stuff like that, and you know it's not in like the best neighborhood, it's not like the worst neighborhood, it's just like an average low income neighborhood. And so, taking that into account, regardless in this market, you know I can charge. These duplexes are two bedrooms, one bath on each side and I can charge, you know, up to I think one of them is like almost 900. And for this one I think I'm charging like 850. But even with 5% down, 113 K that I paid for it and an 8% interest, me living on one side, it only puts 330 for about $350, let's say, out of pocket that I have to make up for the mortgage and this is including like vacancies of the other side is not rented out and it accounts for like the repairs and stuff like that. Now it doesn't account for a property manager because, assuming you will be managing the property since you live there, right, and then you know some other repairs I put just like a 5% repair because you live there, you're probably going to be doing some of the maintenance and the repairs, right, but all in all, accounting for all of that, doing something like this, you know that's going to be like $350 out of pocket for yourself, and I mean, where can you live for $350?

Speaker 1: 19:53

You know for a two bedroom, one bath. You know apartment and even if you want to do it even better, like you get a friend to rent out the other room and then you could even make up those $350. Thank you. Now let's say you live in it for a year and then you decide that you are going to move out and do the same thing again with another property. Or let's say you stay like a year or two or whatever. Even that way, once you move out, you rent that unit that you were living in for another 850. So each side is 850, right, you're still now going to make about $380 of cash flow after like expenses. It's still assuming that you're going to be the property manager, since you're in the area, but still you know you're still cash flowing, like you're still having a positive cash flow even in this scenario. So don't let the high interest and don't let the idea that you only see a 5% down payment deter you.

Speaker 1: 20:57

Now, if you download the calculator, you'll notice that I don't include PMI, and that's just because, as an investor, I am required to pay at least 20%. So then I don't end up paying PMI anyways, and that's the typical case for an investor that's not living in the property. But in this case you could add like 20-50 bucks per month on top of your mortgage, and so let's say, instead of the 350 that I was talking about, that you would pay out of pocket. If you lived on one side, let's say it's 400 that you pay. That's still a really good deal. Living in a two bedroom, one bed bath for $400 and you're saving all that extra money to, you know, either travel to save up for another another 5% or whatever for another property, so you can do this all over again. That's still a good deal.

Speaker 1: 21:56

And once you move out, let's say for, in my case, rent out that unit that I was staying at for 850. You know, instead of the 379, 380, that I would cash flow let's say it would be, you know, 3350 or whatever and again you could take advantage of, you know, the ability to buy more distressed properties. So you might. You know, I saw a duplex the other day for it was like 70k and it wasn't too bad. It needed, like new flooring. You tie on stuff like that, but overall, you know, you can increase, appreciate the property a little bit as you fix it up.

Speaker 1: 22:37

You got it for cheaper but the rental market is still like 850 and above, like you know, all these things you have to take into account, and it's reducing your housing costs. It is getting you started in real estate. You're getting a property that is, if you're living in, it is getting, you know, like over 75% of it being paid by a tenant on the other side and then when you get out is, you know, 100% paid by the tenants. You know, and you're making money off of it. And then you go and do it again, and so that's the idea of how you can use this to your advantage and start getting to real estate, building that, you know, those multiple sources of income, building that generational wealth.

Speaker 1: 23:27

And you know, don't you know, get scared off by these 8% and interest rates and seeing that 5%, you know down payment and being like, oh, I'm going to be underwater. You just have to know your market, know the properties, figure out how much rent you can charge and even in your area, you can start looking into that. Because, yeah, you might say, okay, I bought this property for 113k and I'm renting out for 850, but my area let's say, oh, you know in my area that the duplexes are like 250 or 300k but you can charge like $1300. You know. So, like you got to remember that as well that even though I'm saying I bought a property, a duplex, for 130k and renting out for 850, that's my market, in your market, yeah, it might be pricier but you might be able to charge more rent and then, plus, you're living in it and reducing your housing costs and all that stuff. So really, you have to take into account everything, right and like.

Speaker 1: 24:42

To me, this is a great option, like I'm kind of happy about it that this is going to make, you know, getting into real estate investing more achievable and more affordable. And you know, that's what I'm all about is trying to get me hinted, to get into real estate investing so we could start, you know, closing that racial wealth gap and building generational wealth for, you know, our future generations. So, yeah, if you are looking to get into, you know, investing with your first property like this is a great option. And again it comes. You know, I think it starts November 18th when you could start applying.

Speaker 1: 25:24

But, you know, again you can start reaching out to lenders and start figuring out what you need, what the requirements are. You know stuff like that and you can even start looking like. You know I stay like almost daily when I'm like at work bored, I just, you know, scroll and try to, you know, look for properties and stuff like that. You can start seeing what's out there and start getting an idea of what you can get, start looking at the rental marketing, your area and, like, if you need help, you can reach out to me. I do have a course that walks you through all of this. And again, don't forget to get the free rental property calculator that can use as a tool to help you know, help you figure out if it would be a good option. So I'm excited that we have another option out there that's going to make this more accessible and more affordable to be able to get into this. So, overall, I'm excited. Hopefully I see people start taking advantage of this and making it work for them.

Speaker 1: 26:26

But other than that, I will see you in the next episode. Bye. Thank you so much for listening. If you enjoyed this episode, please rate and share so others may find this podcast. If you like to be a guest on the show, you can email me at infomoneychismecom. And don't forget to follow me on all my social medias that are listed below. Hasta la próxima, bye.