Real estate investing has long been a proven strategy for those seeking to diversify their portfolios and build long-term wealth. Traditionally, investing in rental properties has required substantial upfront capital and significant assets, making it difficult for aspiring investors to enter the market. However, Fannie Mae has announced a reduction in the down payment requirements to purchase a two- to four-unit property.
Their recent release indicates that a new 5% down payment program will be made available in the near future. This program allows investors to pursue what has been commonly branded as the "house hack," in which they would occupy one unit and rent out the others in the building.
Before this announcement, the buyer of a two-unit property would need to make a 15% down payment at minimum. If purchasing a property with three to four units, they would pay 25% down, even as an owner-occupying buyer.
The Potential Benefits
This new program could make real estate investing more accessible to a much broader demographic, allowing would-be investors to get into the game much earlier than they could have at any other time. First-time investors and young professionals now have the capability to purchase a property and, in some cases, create a cash flow without having any personal housing expenses.
Multi-unit properties have always held unique benefits for investors, providing potentially higher cash flow, multiple rental income streams, and reduced risk spread over multiple units to minimize exposure when financial hardships impact tenants. It is also possible to have a partially occupied building and still be able to cover all the expenses associated with financing, taxes, insurance, and maintenance. Developers who focus on constructing these particular types of properties could begin opening up their marketing to a wider demographic, creating increased demand, which could lead to more jobs and help economic growth.
The Potential Risks
Some of the program’s highest risks involve having such a high loan-to-value on any property when the future of the market is as uncertain as it is today. Many speculate that we could see a dip in real estate prices in the near future. It's my personal belief that we will not see significant declines, however, due to a lack of inventory and the continued strong demand for housing.
Significant price increases due to the broadening demographic of potential buyers also pose a great risk. If the demand significantly increases and pushes prices higher than they are today, that median price point could force rents to increase, causing continued housing-based inflation.
Conclusion
Fannie Mae's 5% down payment program has the potential to reshape the landscape of real estate investing, offering a more inclusive approach. However, its ultimate impact and success will depend on various factors, some of which are yet to unfold. We eagerly await further details and lending guidelines from Fannie Mae, as this initiative promises to open new doors for aspiring investors looking to step into real estate with a smaller initial financial commitment.
About the Author:
Aaron Chapman is a veteran in the finance industry with expertise in complex transactions since 1997. He is ranked in the top 1% of over 300,000 licensed loan originators and closes over 100 transactions per month. Learn more at aaronbchapman.com.
Disclaimer:
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
SecurityNational Mortgage Company, and its loan officers, unless individually licensed and specifically denoted in their credentials, are not qualified to, and are prohibited from representing themselves as accountants, attorneys, certified financial planners, estate planners, investment specialists, or tax experts, and will not advise you in those matters. Always seek the advice of a licensed professional. This article is for informational purposes only, contains the opinion of the author, not necessarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Aaron Chapman, NMLS#267844, SecurityNational Mortgage Company Inc., Co. NMLS# 3116, AZ Banker# 0904315, Equal Housing Lender. Any amounts, figures, payments, or loan terms stated are based on continually changing markets, rates, loan programs, and borrower-specific qualifications, and subject to change without notice. See loan officers featured for a personal consultation and accurate pricing.
The opinions expressed in this blog are the opinions of Aaron Chapman. Such are not the opinions of SecurityNational Mortgage, is informational in purpose, and should not be construed as lending advice. This is not a commitment to make a loan. Loans are subject to borrower and property qualifications. Contact loan originator listed for an accurate, personalized quote. Interest rates and program guidelines are subject to change without notice. SecurityNational Mortgage Company is an Equal Housing Lender NMLS# 3116. AZ Banker# 0904315
