Jennet Kresge

At Home In Santa Cruz

Jennet Kresge

At Home In Santa Cruz

Team Strock, eXp Realty of California, Inc.


Could Purchasing a Multi-Residential Property End Up Being More Affordable?

When you think about becoming a homeowner, I’m sure the first thing that DOES NOT cross your mind is also becoming a landlord! But after reading today’s article, you may think completely differently about that!

With the incredibly helpful wisdom of Andrea Schenk of Santa Cruz Lending Group, I’m talking about what it could look like for you to purchase a multi-residential unit property (a legal duplex, tri-plex, or 4-plex) as a primary residence. I’m so excited to share this new perspective with you! I think this is going to be an exciting new way for some home buyers to get started in the real estate market and start building wealth!

Here are 3 really cool parts about purchasing a multi-residential property that, when combined together, could actually make it more affordable and/or easier to qualify for than a single-family residential property:

Part 1. The conventional conforming loan limits for multi-residential properties also went up in 2022, and guidelines for conventional loans still allow for gift funds.

Number of UnitsNew Conforming Loan AmountDown Payment Requirement
2$1,243,05015% (FHA 3.5%)
3$1,502,47520% (FHA 3.5%)
4$1,867,27520% (FHA 3.5%)

At first glance of this chart, you notice some higher down payment requirements. But, for 2 units, if your total down payment is 15%, then only 5% has to come from your own resources, the rest can be gift.  If your down payment is 20%, all of it can be gift funds. For 3-4 units, your 20% down can ALL be gift funds. And don’t forget all the other sources of down payments I discussed in this article that also apply for multi-res.

Part 2. 75% of the market rent(s) collectable from the additional rental unit(s) can be applied to your income, making it easier to qualify for the loan.

Here’s where it starts to get exciting! With market rents where they are here in Santa Cruz County, it’s easy to say that you could factor that 75% of rent (at an estimated $3500/month rental) to equal an additional approximate $2625/month per unit toward your qualifying income. That’s huge!

Part 3. 100% of the rents you receive can be used to offset your mortgage payment, ultimately reducing your overall monthly payment, and making it more affordable.

I think this speaks for itself, but here’s an example of a duplex purchase at the conforming loan amount that Andrea laid out for a great visual…

15% downPurchase priceInterest ratePITI payment-rental incomeFinal payment

This is a very realistic scenario for pricing of duplexes in Santa Cruz County right now! And the numbers get better for 3-4 units!

BONUS! FHA and VA loans.

For FHA- As you saw in the first chart, I hinted about the lower FHA down payment option. For a duplex the 3 parts outlined above apply. But for 3-4 units there is an additional condition:

The mortgage payment cannot exceed 75% of the market rental income for ALL units (including your projected rent for the owner-occupied unit).

For VA loans – There is NO down payment requirement and there are NO loan limits! BUT if you need the rental income to help you qualify for the loan, then it is required that you have previous rental management experience.

Now this is a lot of information to sink your teeth into, so don’t feel overwhelmed! Talk to me and we can walk through your personal situation to see if this is a good option for you to pursue. And definitely connect with Andrea Schenk who really has the inside scoop on multi-residential financing and can get you pre-qualified and ready to buy! Oh- And tell her I sent you!

At Home In Santa Cruz Blog

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I believe that with Information, Preparation, and Strategy, you can achieve great success. Let me show you how!

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Hi, there!

I believe that with Information, Preparation, and Strategy, you can achieve great success. Let me show you how!

Schedule a time to talk

How I Help Buyers

How I Help Sellers

Stuff You Should Know