Demystifying Multi Family Home Buying

We are ending the first quarter of 2022 and there is still a lot of fuel in the tank of the red hot real estate market. Mortgage rates are starting to rise, but there are plenty of opportunities for home buyers. While the real estate market has received a lot of attention in media headlines, much of the focus has been on single-family homes. While buying a single-family home at today’s mortgage rates is still a great bargain, there is another type of home purchase that has not gotten as much attention as it should. The truth is that multi family homes are a great option, especially in today’s market, and they should be considered by even first-time home buyers. So, what are the benefits of buying a multifamily property? The team at Peoples Choice Mortgage is here to explain. 

Home Buyers Should Consider Multi Family Homes

When most people think of buying a house, they think of buying a single-family house. After all, that is what we have been conditioned to think of when we think of the quintessential American dream. A single-family home, with a yard, and possibly even a white picket fence. First-time home buyers especially think of single-family homes as their first purchase. It is popular to talk about first-time home buyers buying a ‘starter home’, which is always somehow a small single-family home. However, when you look at all of the benefits of buying a multifamily home, it is clear that everyone should consider it, even first-time home buyers. 

The Simplicity of Buying Multi Family Homes

Although multifamily properties come with more units than a single-family home, the truth is that they are just as easy to purchase as single-family homes. As long as the multifamily property has between two and four units, getting a mortgage is very similar to getting a mortgage for a single-family home. 

One big reason why many people might be deterred from buying a multifamily property, especially first-time home buyers, is the cost. Multifamily units do cost more than single-family homes. However, there is something unique about getting a mortgage for multifamily homes that most people do not know; rental income is calculated into your mortgage qualification. Depending on the type of mortgage you are applying for, as much as 75 percent of the cost of the home can count as your income. Whenever you buy a house, it needs to have an appraisal. Same is true for multifamily properties. One difference with multifamily properties is that they also do an income appraisal where they determine how much you can charge for rent. That rental income is then used in your mortgage appplicaiton as income that you can use to qualify for the larger mortgage needed to cover the pricier property. 

Simply put, you can actually buy a larger home that costs more money without having to prove that your normal income has increased. Rental income counts as your income. This is why many people who can qualify to buy a single-family home, are probably in a decent position to qualify to buy a multi-family home. 

Use FHA Loans and VA Loans for Multi Family Homes

Another reason that many home buyers only think about single-family houses is because they are looking to use special programs to finance them. First-time home buyers often rely on FHA loans to buy a house. Veterans often rely on VA loans to buy a house. After all, these programs give you the ability to buy a home with small down payments or no down payments and less-than-perfect credit. However, you can buy a multifamily property using a FHA loan or VA loan. This means the same great benefits you get for down payments and credit requirements can be used for multifamily homes. At that point, there is no reason not to consider multifamily properties. 

Get Rental Income From Multi Family Homes

One of the best parts of becoming a homeowner is that you no longer have to rent. There are some first-time home buyers out there who justify renting because they do not think they can afford a house at today’s prices. Unfortunately, rising rent is making it harder and harder to justify not buying a house. Any way you slice it, rent has increased dramatically. There is no official figure for how much rent has been increasing, but any data point you look at is bad news for renters. Conservative estimates have the national rent average increasing 9.6 percent in 2021, alone. Estimates on the high-end have rent increasing 13 percent over the same timeframe. There is no indication this trend will reverse. At this point, is it really more affordable to rent than to buy a house of your own?

The great part of buying a multifamily home is that you can put these trends to work for you. When you purchase a multifamily home, you get to rent out some of your other units. Not only do you get a house of your own, but you also get passive income. The allure of rental income is even more attractive when you take into account inflation. 

We have been talking for a few months about inflation and it is a topic that will not go away. The truth is that inflation has been getting worse and is currently holding above five percent. Initially, the Federal Reserve claimed that inflation was transitory. However, even the Federal Reserve is changing their tune and is admitting that inflation is lasting longer than they expected. Unless your salary has increased at the same rate of inflation, then your paycheck does not stretch as far as it used to. Thankfully, buying a multifamily home is a way to hedge against inflation. 

Rental prices and inflation rates have a positive relationship. Simply put, as inflation increases, so do rent prices. Buying a multifamily home and renting out some of the units is a great way to make sure inflation does not bite a huge chunk out of your income. People need places to live, so no matter how high inflation goes or how long it lasts, there will be renters. Owning a multifamily property can allow you to take advantage of the need for housing and provide yourself some valuable financial stability. 

Final Thoughts

Multifamily properties are not the first thing that comes to mind when you think of buying a house, but there are good reasons it should be. Buying a multifamily house can give you passive income, more house, and the financing is just as easy as a single-family home. So, whether you are a seasoned homeowner or first-time home buyer, it is worth looking into what multifamily properties are available in your market.

If you are considering buying a house and want an expert mortgage broker to help you, contact us. We can walk you through all of your options for single-family homes or multifamily properties. We will give you a complimentary mortgage qualifier so that you know exactly where you stand and what properties are within your price range. The bottom line is that you have more options available to you than you even realize. Dreaming of buying a house is great, however, it might make more sense to start dreaming even bigger.