As we approach 2024, the landscape of multifamily financing is evolving, offering both opportunities and challenges for prospective buyers. In a recent episode of the Own More Doors podcast, Juan Huizar, President of Sage Real Estate, and Phoebe Todorof, Co-owner of Sage Trust Mortgage, discussed the nuances of obtaining financing for two to four-unit properties. This blog post will delve into their conversation, providing a comprehensive guide on what to expect, how to prepare, and why 2024 could be the right time to invest in multifamily properties.
The Importance of Pre-Approval
Before diving into the multifamily market, it’s crucial to get pre-approved for a loan. Pre-approval is the first and most critical step in determining whether you qualify for a mortgage. It involves submitting a loan application, providing income and asset documentation, and undergoing a credit check. As Phoebe Tudor emphasized, the process is straightforward and doesn’t require any upfront costs. Many people hesitate at this stage, often due to concerns about gathering necessary documents or having their credit checked. However, Phoebe reassured listeners that most of these documents are easily accessible electronically, and the entire process can be completed in about 15 minutes.
Related: Contact Stage Trust Mortgage
Documentation and Requirements
For those considering a multifamily purchase, preparing the necessary documentation is essential. Standard requirements for W2 wage earners include a month’s worth of paycheck stubs, the last two years of W2 forms, the last two months of bank statements, and a government-issued photo ID. If you own other properties or have commission-based income, you’ll also need to provide tax returns for the last two years.
Sage Trust Mortgage makes this process even easier by offering a secure portal on their website where potential buyers can create an account, input basic information, and upload the required documents. This system streamlines the pre-approval process, allowing for a quick turnaround—often within 24 hours.
Overcoming Apprehensions
Many potential buyers express apprehension about the pre-approval process, particularly when it comes to having their credit run. Concerns about a potential ding to their credit score or the time required to gather documents often cause hesitation. Phoebe addressed these concerns by explaining that while running a credit check can slightly dip your credit score, the impact is minimal if you’re not having your credit checked by multiple lenders. Additionally, Sage Trust Mortgage offers a soft credit check option that doesn’t leave an inquiry on your credit report, which can be a great alternative for those still in the initial stages of their search.
For those who feel overwhelmed by the documentation process, Phoebe suggested seeking help from a spouse, family member, or even hiring someone to assist with gathering and uploading documents. The key takeaway is that the pre-approval process is simpler and quicker than many anticipate, and it’s a necessary step in securing a loan.
Current Market Conditions: Buyer’s Market?
One of the key points discussed in the podcast was the current state of the multifamily market. In 2024, it appears to be a buyer’s market, particularly in the multifamily sector. Properties are sitting on the market longer, and there’s an increase in inventory, giving buyers more leverage. Juan shared an example where a significantly discounted offer on a property was surprisingly accepted by the seller, highlighting the advantageous position buyers may find themselves in.
However, despite the potential benefits, some buyers remain hesitant, often due to concerns about high-interest rates and property values. Juan and Phoebe both emphasized that waiting for interest rates to drop might not be the best strategy. If rates do drop, the market will likely shift back to a seller’s market, with increased competition driving up property prices. Instead, they suggest that if you can afford to buy now, it may be wiser to act, secure a property at a favorable price, and refinance later if interest rates decrease.
Leveraging Rental Income for Loan Qualification
One of the advantages of investing in multifamily properties is the ability to use rental income from the other units to qualify for a loan. This additional income can be factored into your overall qualifying income, helping you meet the required debt-to-income ratios. Lenders typically apply a vacancy factor, reducing the gross rental income by 25% to account for potential vacancies. The net amount is then added to your income, making it easier to qualify for a mortgage.
The Fannie Mae 5% Down Program
In October 2023, Fannie Mae introduced a program allowing buyers to purchase two, three, or four-unit properties with just 5% down, provided they live in one of the units. This program was expected to boost sales of multifamily properties by increasing the pool of potential buyers. However, the program has yet to gain significant traction. Phoebe suggested that the high mortgage payments associated with these properties, even after accounting for rental income, may be a deterrent for first-time buyers. She also noted that interest rates would need to drop significantly for the program to become more appealing.
Related: The Fannie Mae 5% Down Program
The Role of Assumable Loans
Assumable loans are another option for buyers looking to secure lower interest rates. Government-backed loans, such as FHA, VA, and USDA loans, can be assumed by a new buyer, allowing them to take over the seller’s existing mortgage at a lower interest rate. This can be a significant advantage in a market where interest rates are high. Juan and Phoebe have previously discussed assumable loans in detail on the podcast, and they recommend exploring this option as an alternative to waiting for interest rates to drop.
Related: How to Secure a 3% Interest Rate in 2024: Expert Tips Revealed
Final Thoughts: Act Now or Wait?
As 2024 approaches, the multifamily market offers unique opportunities for buyers. While interest rates remain high, the current buyer’s market provides leverage to negotiate favorable terms. Juan and Phoebe encourage prospective buyers to get pre-approved, understand their options, and consider acting sooner rather than later. Waiting for interest rates to drop may not be the best strategy, as it could lead to increased competition and higher property prices.
For those considering a multifamily purchase, the advice is clear: get organized, get pre-approved, and take advantage of the current market conditions. Whether you’re a first-time buyer or a seasoned investor, understanding the financing landscape and leveraging the right strategies can help you secure the property that meets your needs and financial goals.
Related: Contact Stage Trust Mortgage
