Duplex & Multifamily Mortgages in NH: Get Rates & Options

A multifamily property is a residential building with multiple units, in which two to four families or tenants can live separately. The owner can either live in one of the units and rent out the others, or live off site and collect rent remotely. Owning a duplex or a multifamily home has multiple benefits: It generates cash flow for the owner, improves your credit score and allows you to take advantage of attractive loan options.

Depending on the terms of your multifamily mortgage, you can buy a duplex, triplex or four-unit apartment building, but you don’t need to look at it as your long-term home. Provided you live onsite long enough to meet the terms of your mortgage, you can explore other options, such as becoming a remote landlord. If you’re willing to put in the time and money required to maintain the property and communicate with your tenants, multifamily homeownership is a largely hands-off income generator.

The difference between the two is easy to discern: An owner-occupied loan requires that at least one owner or co-borrower live onsite, while investment properties are owned by remote landlords who may work with a property management company to maintain the buildings and address tenant needs.

• Owner-occupied property: Most loan options require owners to live onsite for at least a portion of their ownership, even if the resident is a co-borrower (or sometimes even a child of the borrower). It’s recommended that onsite owners be handy, or at least have access to handy people, as they’ll be responsible for building repairs and upkeep. Occupying owners qualify for government loans and conventional loans.
• Investment property: A property becomes an investment when the owner no longer lives onsite. Flipping an owner-occupied multifamily home into an investment property is often a logical next step for first time buyers, as it allows owners to continue to build their portfolio while being free to live where they please. Investors qualify only for conventional loans.

Multifamily mortgage seekers are in luck — there are several great loan options out there for you. As long as potential borrowers meet the standard requirements (including having enough reserve funds after closing costs), you should have no problem finding a loan option that works for you.

• Federal Housing Administration (FHA) Loan: An FHA multifamily loan is a great option for first time homeownership. With as little as 3.5% down, you can buy a property with up to four units — as long as the building is owner-occupied. The loan cap for a four-unit property in New Hampshire is $1,326,950, though this may vary by county.
• Department of Veterans Affairs (VA) Loan: Designed for veterans, active military personnel and surviving spouses, a VA loan requires no money down up front. Borrowers can buy a property with up to four units, as long as one unit is occupied by the owner for the duration of ownership. However, owners cannot use the income from the other rental units for mortgage payments unless they have previous experience as a landlord.
• Conventional Loan: These are non-government-backed loans with slightly stricter guidelines than either FHA or VA loans. Freddie Mac offers Home Possible, a multifamily loan option that allows homeowners to put just 15% down on properties with two to four units, as long as they occupy one. Home Possible comes with an income limit: Borrowers’ incomes cannot exceed 80% of the Area Median Income (AMI). First-time buyers must also take a homeownership education course to qualify.

Buying a multifamily property can be a great investment with enviable returns, and multifamily financing isn’t much different from a standard mortgage. Here are our top four incentives:

1. Expand your asset portfolio – Buying multiple properties takes time and a lot of money. Investing in multifamily housing nets you multiple assets in one transaction.
2. Generate passive income – Reliable tenants make rent collection a breeze. As long as you can commit to property maintenance, tenant support and applicant screening, multifamily homeownership almost pays for itself. Know your loan though: Make sure the terms of your mortgage allow you to pay with rental income.
3. The timing is right – Investing in a duplex or multifamily property is an attractive option for younger or single buyers looking to build their asset portfolio. We recommend starting out with an owner-occupied property, then flipping it into an investment property a few years down the line.
4. Reduce your living costs – In addition to collecting rent, rates for multifamily loans do not tend to increase over time as much as those for single-family homes. Best of all, you may be able to write off home repairs as business expenses!

In most cases in New Hampshire, properties with two to four separate units qualify as multifamily properties. Anything with five or more units is considered a commercial property, and carries altogether different loan requirements. Review this checklist to see if your property can qualify for a multifamily loan.

• 2 to 4 separate units (duplex, triplex, quadplex, townhouse, renovated single-family home or semi-detached home)
• Each unit has its own kitchen, bathroom, entrance (usually) and address/unit number
• Ability to be owner-occupied for at least one year (FHA or VA loans only)

With its historic cities and picturesque college towns, New Hampshire provides an abundance of multifamily property options, from converted mill buildings to stately Victorian homes. Durham, Keene and Hanover are hotspots for multifamily properties, due to the longtime yearly influx of college students and faculty seeking housing. Likewise, cities like Portsmouth and Manchester, while not urban centers on par with Boston, house their fair share of working professionals, younger renters and suburban apartment-dwellers.

While some of the state’s older homes may require more upkeep, New Hampshire Housing offers as much as 4% in cash assistance up front to offset closing costs. Be sure to do your research though: Loan limits vary state to state and county to county. Luckily, the Granite State has regulations in place to protect the buyer from unexpected fees.

If you’re considering investing in a multifamily property in New Hampshire, Blue Water Mortgage has all the answers you need to begin exploring your options. Contact us today.

Q: Can you use rental income to qualify for a loan?
A: Yes, but with conditions. You can use both current and projected (future) rental income to qualify for FHA and conventional loans, as long as the income is properly documented and/or appropriately adjusted for market rent rates. However, this is not allowed under a VA loan.

Q: What rental income can you use to qualify for a loan?
A: When applying for an FHA or conventional loan, you can count 75% of your rental income from a property you already own, or the rent you expect to receive from a future property. This applies to the market rent from both owner-occupied and investment properties.

Q: How much do you need in reserves to qualify for a loan?
A: Besides your closing costs and fees, you will need to prove you have enough funds left over to put your mortgage lender at ease, in case of a loss of income. Depending on your loan type, you could need anywhere from three to six months’ worth of mortgage payments in liquid cash — assets like your car or other properties do not count.

Q: How do I finance a duplex or multifamily home?
A: Multifamily financing options vary between owner-occupied and investment property loans. Multifamily mortgages work much the same as single-family mortgages, with 30 years being the standard term. However, there is a national cap on loan rates; be sure to check state and county caps as well. See our Top Loan Options for Multifamily Mortgages, above.

Q: Do I need to put 20% down if purchasing a multifamily home?
A: Typically, you need to put down at least 15% to buy a duplex, and 20% for three- to four-unit properties. Fortunately, the loan you choose could require as little as 3.5% down to get started (0% for VA!).

Q: How long do I need to stay in the home if I have an owner-occupied loan?
A: If you have an FHA multifamily loan, you must live onsite for at least one year. For a VA loan, the owner must live on the property for the duration of ownership. Consult your mortgage servicer if you plan to vacate your unit and rent it out to a tenant. Investment property loans do not require the owner to live onsite.

Q: What is a non-occupying borrower?
A: Say, for example, you want to purchase a multifamily home and occupy it as your primary, but your income or credit profile are not strong enough to qualify on your own. A non-occupying coborrower is someone who will not live in the home with you, but their credit profile and income are factored into the equation to help you qualify for a mortgage.