You know that, in many cases, buying a home is less expensive in the long run than renting. In some cases, the home you own could also generate income. If you purchase a multifamily home, which usually has between two and four separate units, you can turn the building where you live into a source of income. A multifamily building might also be a good option for you if you want to go the condo route instead of purchasing a separate single family home.
Mortgage rules
The type of mortgage you can get to purchase a multifamily property depends on the size of the building and the number of units you buy. It also depends on whether you plan on living in the building. You can usually prequalify for a conventional mortgage if you plan on living on the property and if it has no more than four units. If the building has five or more units or if you don’t plan on living there, you’ll typically have to take out a commercial loan, which often means a higher interest rate and a higher down payment.
Another option when purchasing a multifamily home is to apply for a Federal Housing Administration (FHA) loan. FHA loans are available for buildings with between one and four units. The program is ideal if you didn’t prequalify for a conventional loan or don’t have a significant down payment. With an FHA loan, your down payment can be as small as 3.5 percent.
There are limits to the size of the mortgage you can receive, though, based on the size of the building and your location. In Cobb County, Georgia, for example, the mortgage limit for a four-unit home is $617,000 while the limit for a two-unit building is $410,750.
Going the landlord route
While renting out several units in a multifamily building can be a good way to help pay down the mortgage or earn extra income, there are some things to consider first. The laws concerning landlords and tenants vary from state to state. For example, in Georgia, you have to provide a smoke detector in rental units but aren’t required to provide a stove or refrigerator. Before you start renting out your property, consider working with an attorney who can answer any questions you might have.
Buying one unit
Buying a multifamily property doesn’t mean you have to purchase the entire building. You do have the option of buying a condo or apartment in a building with several units. The unit can be in a building that’s already a condo, or it can be in a building that’s in the process of being converted from rental units to a condo.
Whether you want the whole thing or just one unit, get your financing in order and prequalify for a loan before you start looking at multifamily properties. You don’t want any surprises to pop up that can get in the way of you and your homeownership or landlord dreams.
Image source: Flickr
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