Resources

Loan limits as of 1.1.2024

Thinking About Purchasing a Single Unit, or a 2-4 Unit Property? Know Your Loan Options.

• Are you thinking about purchasing a multi-unit investment property?
• Or, do you plan on living in one of the units and essentially have the other tenants pay your housing expense or most of it, sometimes referred to as house hacking?

If you are, you need to understand your loan options. Many buyers forget that conforming loan limits, which are limits established by Fannie Mae and Freddie Mac, are higher for multi-unit properties. Also, FHA and VA limits are higher as well.

NOTE: FHA loan caps can differ amongst counties throughout the nation. The numbers I used are for Cook County, Illinois and most other counties surrounding Chicago.

Read my blog: How Much Should I put Down On My New Home Purchase?

Here are the minimum down payment requirements – Additional notes below table

*First Time Homebuyer specific program might have an income restriction based on census tract.
**Jumbo loans greater than $1,000,000 will require a higher down payment.
All down payment amounts assume the buyer meets conventional Fannie Mae, FHA and/or VA guidelines. Currently, conforming loan amount minimums for multi-unit properties are the same whether you are going to purchase the property and live in one of the units or if you plan on purchasing it strictly as an investment property.FHA and VA loans are only provided for primary residence purchases. So, if you want to purchase a multi-unit and use an government sponsored financing, you must live there. Lenders do check post-closing so keep that in mind. Occupancy misrepresentation is considered fraud and can carry severe criminal penalties so make sure you move in, stay for at least one year and really use it as your primary home.***Although the stated required minimum down payment is 0% for VA and only 3.5% for FHA, three and four unit buildings must meet a net self-sufficiency rental income calculation. Basically, 75% of the appraiser’s estimate for rents in the building (including the estimated rent for the owner’s unit if it could be rented out) must meet or exceed the total mortgage payment including taxes and all insurance payments. If it down not, the down payment must be increased until the transaction meets that requirement. If you are interested in purchasing a rental income property, do some research. Look at multi-unit properties on-line. Do the math. What are the total rents generated by the building? What would the total mortgage payment be including taxes and insurance? What other expenses, such as utilities, would have to be paid by the owner? What vacancy factor should you apply to your rents?

Read this page if you are buying a condo: Understanding Condo Approval

The following link: Fannie Mae Condo Project Guidelines discusses:

• Full and Limited Review requirements
• Budget and reserves
• Other unit owners delinquent on HOA dues
• Owner occupancy vs. percentage of rented units

You’ll want to read this section on Condo purchases

Interested party contributions (IPCs) are costs that are normally the responsibility of the property purchaser that are paid directly or indirectly by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property.

IPC Limits

The table below provides IPC limits for conventional mortgages.

IPCs that exceed these limits are considered sales concessions. The property’s sales price must be adjusted downward to reflect the amount of contribution that exceeds the maximum, and the maximum LTV/CLTV ratios must be recalculated using the reduced sales price or appraised value.

Interested parties to a transaction include, but are not limited to, the property seller, the builder/developer, the real estate agent or broker, or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest price possible. A lender or employer is not considered an interested party to a sales transaction unless it is the property seller or is affiliated with the property seller or another interested party to the transaction. (For Fannie Mae’s purposes, an affiliation exists when there is direct common ownership or control by the lender over the interested party or vice versa, or when there is direct common ownership or control by a third party over both the lender and the interested party. A typical ongoing business relationship — for example, the relationship between a builder and a lender that serves as its financial institution — does not constitute an affiliation.)

IPCs are either financing concessions or sales concessions. Fannie Mae considers the following to be IPCs:

• funds that are paid directly from the interested party to the borrower;
• funds that flow from an interested party through a third-party organization, including nonprofit entities, to the borrower;
• funds that flow to the transaction on the borrower’s behalf from an interested party, including a third-party organization or nonprofit agency; and
• funds that are donated to a third party, which then provides the money to pay some or all of the closing costs for a specific transaction.

Fannie Mae does not permit IPCs to be used to make the borrower’s down payment, meet financial reserve requirements, or meet minimum borrower contribution requirements.

FNMA – Rental Income/Loss Calculation

If you have a rental property, we can use income when qualifying for a new home purchase.   We will review last year’s tax returns (Schedule E) and use this calculation.

Property address:     ______________________________

**The current mortgage statement for all rental properties is required to calculate rental income/loss for FNMA loans**

You can also use future rental income for a property you are purchasing or a property you are exiting if you have not previously claimed rental income.   In order to use income, we’ll need to verify a lease, first month’s rent/security deposit and use 75% of the monthly rent as income to offset your mortgage payment. Restrictions apply. See Below:

When it comes to commissioned, contract employees or self-employed borrowers, we typically need two years of documentation. In addition to the typical supporting documents required for home financing, you can expect us to request the following at a minimum:

• 2 Years W-2s, K-1s and 1099s if applicable.
• 2 Years Federal Tax Returns (All pages of all schedules for personal and business)
• YTD P&L and balance sheet.

Having a business can be complex, so at times we may request additional documents like:

• 3 month’s business checking/asset statements
• Copy of your business license
• Letter from your CPA

Please reference this comprehensive list for all potential documents needed: Printable List

Summary — All Waiting Period Requirements

The following table summarizes the waiting period requirements for all significant derogatory credit events.

Conventional Loans

More information here

FHA Loans

*FHA will consider approving an FHA loan application from a borrower who is still paying on a Chapter 13 Bankruptcy-but only if those payments have been made and verified for a period of at least one year.

The borrower isn’t automatically able to apply for a new FHA loan if they meet this requirement–the court trustee’s written approval is a condition of the policy. Additionally, the borrower must write a detailed explanation of the bankruptcy and submit it with the loan application. The borrower must not have any derogatory payments since filing the for bankruptcy, good credit scores, a satisfactory employment history and other financial qualifications.

Whether or not it makes sense to refinance is quite different for each individual’s current loan structure, life plans and financial goals.

The first thing you need to ask yourself is why do you want to refinance or what are some reasons to refinance your mortgage? Here are a few:

• You want to lower your interest rate.
• You want to lower your payment.
• You want to shorten your loan term.
• You want to drop or reduce your monthly PMI payment.
• You want to cash out some equity.

Now that you’ve determined what you want to do, you need to figure out if the timing makes sense and if you actually qualify to refinance into a more desirable structure. Contact me to find out!

Read my full blog article here: When Does It Make Sense To Refinance?

This is the maximum allowable loan-to-value percentages for conforming/conventional and government sponsored loans. Please reach out to me directly for Jumbo guidelines.

Read my full blog article here: Need Cash Out? How Much You Can Get

If you are refinancing your home, we can lock in immediately. Typical lock periods are 30-45 days for the best interest rates/pricing.

If you are purchasing your home, it is best to have a sales contract in place. You may hear of people locking into a “TBD” property, but it’s likely going to be a longer than standard lock period, which translates to a higher rate. Having a sales contract provides many crucial pieces of information needed when determining your rate, but most importantly the sales contract provides a closing date. This tells us how long of a lock period you need. The shorter the lock period, the better the interest rate. If you are to close in 50 days, a 45 day lock would do no good and we’d need to do a 60 day lock or wait a few days to do a 45 day lock. If your closing is scheduled for 25 days, there would be no reason to do a 60 day lock when we can get you a better rate on a 30 day lock.

Check out the FHA FAQ section HERE.
Check out the VA FAQ section HERE.