A Guide to Fannie Mae's 5% Down Payment Program
February 22, 2024

A Guide to Fannie Mae's 5% Down Payment Program

In recent years, the landscape of real estate financing has undergone significant shifts, particularly with regards to multifamily properties. Fannie Mae's latest program, introduced in November 2023, has sparked considerable interest and discussion among potential buyers and investors alike. We’ll delve into the details of this program, highlighting its pros and cons for those looking to venture into the multifamily real estate market.

Understanding Fannie Mae's Program

Fannie Mae's new program represents a departure from traditional down payment requirements for multi family properties. Previously, buyers seeking to invest in 2-, 3-, or4-unit homes faced substantial down payment obligations, often ranging from 15%to 25%. However, the latest program allows for a significantly reduced down payment of just 5% for owner-occupied transactions.

Pros of Fannie Mae's Program

  1. Reduced Down Payment: The most notable benefit of Fannie Mae's program is the reduced down payment requirement, making multifamily properties more accessible to a broader range of buyers, including first-time homeowners and real estate investors.
  2. Live Plus Income: Buyers have the opportunity to offset their housing costs by renting out the additional units in the property. This 'live plus income' model enables buyers to become homeowners and investors simultaneously, leveraging rental income to support their mortgage payments.
  3. Qualifying with Rental Income: Unlike traditional mortgage programs, Fannie Mae allows buyers to use projected rental income to qualify for the loan. This provision can be particularly advantageous for buyers with limited personal income but strong potential rental revenue.
  4. Encouraging Real Estate Investment: By reducing barriers to entry and promoting affordable homeownership, Fannie Mae's program encourages individuals to explore real estate investment opportunities, thereby fostering wealth-building and financial stability.

Cons of Fannie Mae's Program

  1. Additional Financial Requirements: While the reduced down payment is appealing, buyers should be aware of additional financial obligations associated with the program. These include closing costs, reserves (equivalent to six months of full payment), and potential state-specific loan limits.
  2. Credit and Liquidity Requirements: Fannie Mae's program imposes certain credit score and post-closing liquidity requirements, which may pose challenges for some buyers, particularly those with limited financial resources or less-than-ideal credit histories.
  3. Residency Requirement: Buyers must intend to occupy one of the units as their primary residence, limiting the program's suitability for purely investment purposes. This residency requirement may deter some investors seeking non-owner-occupied properties.
  4. State-Specific Limitations: The program's applicability may vary depending on the state, with certain regions subject to distinct loan limits and eligibility criteria. Prospective buyers should familiarize themselves with state-specific regulations     before pursuing financing through Fannie Mae.

Fannie Mae's new programrepresents a significant milestone in the realm of multifamily real estatefinancing, offering a compelling opportunity for buyers to enter the marketwith reduced down payments and enhanced flexibility. While the program boastsseveral advantages, including live plus income and qualifying with rentalrevenue, it's essential for buyers to weigh the associated caveats and considertheir individual financial circumstances.

As with any financial decision, thorough research and consultation with mortgage lenders are crucial steps in navigating the complexities of Fannie Mae's program. By understanding the program's nuances and evaluating its pros and cons, aspiring homeowners and investors can make informed decisions and embark on their multifamily real estate journey with confidence.

For more insights into this topic, check out Episode 107 of The Build Up Podcast below for Candice and Malessa’s informative episode with MaryAnne Gilmartin, Founder and CEO of MAG Partners and real estate developer.

Watch The Episode

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