2-4 Unit Buildings and Mortgage Loans

2-4 Unit Building Loans

A 2-4 unit building is a great way to start a real-estate holdings empire. But getting a mortgage loan against such a building is a bit harder than getting one against a condo, townhouse or a house. And if it’s an investment property, it’s even harder.

Because there are more variables involved, lenders have more / more stringent requirements.

The more variables are: the tenants and the borrower’s ability to keep the units rented.

Types of 2-4 Unit Buildings

There are 5 types of 2-4 unit buildings:

  • residential
  • mixed-use
  • commercial
  • owner-occupied
  • investment.

I know, I know, I’m mixing things up.

But there’s a reason.

Renting Experience, First-Time Home Buyers, and Mortgages

There are lenders that require that borrowers have 12 months of landlord experience (proven through Schedule E of their federal tax

There are lenders that do not.

In the mortgage industry, first-time home buyer is defined either as someone who has not owned a real-estate property in the last 3 years or someone who has not owned a real-estate property in the last 7.

Call 847-840-8884 now to get started on your mixed-use property mortgage.

FHA and 3-4 Unit Buildings

The FHA will only insure a 3-4 unit building if it is self-sufficient. Self-sufficiency is defined thusly:

75% of the monthly rental income the building would get if fully rented at market value is equal to, or higher than, the interest,
principal and mortgage insurance borrowers would have to pay if they got the mortgage loan they applied for.

1-5+ Unit Mixed-Use Building Mortgage

One-unit mixed-use buildings?  There ain’t no such thing!  And what’s with the 5-unit?

Slow down.  Let me explain.

Fannie Mae only lends against mixed-use buildings when the building is a one-unit property where the front room is a shop and the rest is an apartment.

The FHA insures loans against the same plus 2-4 unit.  The VA adds a twist, up to 4 residential unit + 1 business unit for 1 veteran borrower.  Two veterans could get a mortgage on a property with an additional unit for the additional vet, so 6 units total. Three veterans could get a building with the four basic residential units + 3 additional units (one for each veteran) and 1 commercial unit.

For each additional veteran buying there can be an additional unit.

For either the FHA or the VA to insure a loan, one of the borrowers must occupy one of the apartments as their primary residence.

The type of mortgage you get when the collateral is a mixed-use building depends first on whether the owner occupies one of the units.

If the the owner does not occupy one of the apartments as principal residence, the only option is a commercial loan… Unless the loan amount is at least $1 above Fannie Mae’s loan limits for the number of units and the building is residential or, if mixed-use, the commercial part is kind of residential (artist’s residence… where the front room is a store and the rest of the unit is the place for the artist to live and create).

In that case, there are residential loan options too.

Whether you need a commercial or a residential mortgage loan for your mixed-use property, call 847-840-8884 now.

What’s the Big Difference

The differences that matter are: cost and terms.


Residential mixed-use property mortgages can be amortized and paid off over 30 years.  Commercial ones have shorter repayment periods (5-10 years).  They are amortized over shorter periods too.  That means the monthly payments are larger.

Conforming conventional and FHA / VA mixed-use mortgage loans cannot have a pre-payment penalty; commercial ones can and do.  Serious penalties, too.

Closing Costs

With a conforming conventional and FHA / VA loans all originating costs must come in at 3% or less of the loan.  Not so with commercial loans.

Call 847-840-8884 now to find out what terms and closing costs are available to you.

Rental Income and Your Mortgage

If you’re buying an owner-occupied 2-4 unit building, 75% of the rental income from the other apartments is added to your income.  In other words, buying this type of property helps you qualify for a larger mortgage loan and, therefore, a more expensive property.

It gets better if you’re buying it as an investment… if you have 20% of the sale price for the down payment.

Because the rental income is pitted against the expenses, not just added to your income.

That means you qualify for a much larger loan than if you just added the income from the building to your income.

The Best 2-4 (1-5) Building for Getting a Mortgage

It’s easier to get a mortgage against a residential, 2-unit buildings; 3 and 4 residential unit buildings are the same, then you have the mixed-unit buildings.

If you have the skills to handle more units (maintaining them and dealing with tenants), it makes more sense to buy a 3 or 4 unit building, or a mixed-unit one.

Call me at 847-840-8884 now to get a great loan on your 2-4 unit property.