On November 18, 2023, Fannie Mae is set to implement significant changes in its owner-occupied financing guidelines for multifamily (2-4 unit) properties. These changes are aimed at fostering responsible and sustainable homeownership while also addressing the unique challenges of multifamily housing. Previously, owner occupied buyers using conventional financing to acquire a duplex required 15% down and for triplex and fourplexes 25% down. The change coming allows buyers using conventional financing to put 5% down on 2-4 unit properties that they intend to occupy. This financing type has its benefits when compared to FHA.

FHA financing usually has higher private mortgage insurance (PMI) costs that stick with them for the life of the loan. Conventional PMI is usually less costly and has a clause allowing it to drop once a property has reached a certain equity position.

To monitor compliance with the new owner-occupancy requirements, Fannie Mae will introduce more robust reporting mechanisms. Property owners will be required to provide regular updates on the owner-occupancy status of their multifamily units. Failure to meet these reporting requirements could lead to financial penalties or even the revocation of Fannie Mae financing. This comes as no surprise as being a landlord is no easy task, especially in our Oregon market given the tenant/landlord laws in place. These measures are intended to ensure that property owners adhere to the new guidelines and maintain the required level of owner-occupancy.

Unknown to me at this time are the potential for stricter borrower qualifications and potential for homeowner/investors to meet higher eligibility criteria. Historically owner occupied multifamily buyers could utilize the income from adjoining units to help boost pre-qualification amounts. Called phantom income, the lender would allow 75% of the current rents in place as income for the borrower. Vacant units would be left to the appraiser to determine market rents and that income would help push the buyers maximum loan amounts up.

Fannie Mae's new owner-occupancy financing changes for multifamily properties, set to take effect on November 18, 2023, represent a significant shift in its approach to multifamily housing. By raising the minimum owner-occupancy requirement, tightening borrower eligibility criteria, and implementing stricter reporting and compliance measures, Fannie Mae aims to strike a balance between rental housing and homeownership.

These changes are intended to promote responsible homeownership, improve property stability, and provide aspiring homeowners with greater access to affordable housing options. However, they may also present challenges for investors who rely on rental income from multifamily properties. I suspect with the added allure to house hacking (bigger pockets coined term for "owner occupied") there will be increased competition in the 2-4 unit space, where valuations are already convoluted between comparable sales and the income-approach.

As these changes come into effect, it will be essential for property owners, investors, and prospective homeowners to carefully assess their implications and adapt their strategies accordingly. Ultimately, Fannie Mae's goal is to create a multifamily housing market that offers both rental and homeownership opportunities while promoting responsible and sustainable housing practices.