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# 5% Down on a 2-4 Unit Property: Fannie Mae's New Rules for Owner-Occupants
- URL: https://www.mortgagemomradio.com/5-down-on-a-2-4-unit-property-fannie-maes-new-rules-for-owner-occupants/
- Published: 2023-10-25T21:00:00.000Z
- Updated: 2026-09-04T17:24:23.000Z
- Description: Fannie Mae cut the down payment on owner-occupied 2-4 unit homes from 15-25% to just 5%, with no requirement that the rents cover the payment. Debbie also covers FHA's new ADU rental income rules and buying a home for a disabled adult child or elderly parent.
- Author: Deborah Marcoux
- Tags: Podcast, Mortgage Mom Radio, #episode-backfill

Mortgage Mom Radio • “Big Change! 5% down on 2-4 Unit Property” • Live show from Wednesday, October 25, 2023 • 31 minutes • Hosted by Debbie Marcoux, NMLS #237926

Three guideline changes in one show, and the first one is a big deal for anyone who has ever thought about living in one unit and renting out the rest. Starting November 18, 2023, Fannie Mae allows **5% down on an owner-occupied 2-4 unit property** — down from 15% on a duplex and 25% on a triplex or fourplex — with no requirement that the rents cover the whole mortgage payment. Debbie also covers FHA's updated rules letting rental income from an ADU count toward qualifying, and a long-standing Fannie Mae option almost nobody talks about: buying a home for a disabled adult child or an elderly parent at primary-residence terms.

## Key takeaways

- **Fannie Mae drops the down payment on owner-occupied 2-4 units to 5%, effective November 18, 2023.** The maximum loan-to-value (and combined loan-to-value, if there's a second) goes to **95%** on 2-4 unit principal residences. The old requirement was 15% down on a duplex and 25% down on a 3-4 unit.
- **This is for owner-occupants only.** You live in one of the units. Investors still need 25% down on a 2-4 unit property.
- **The big advantage over FHA: no cash-flow test.** FHA has always allowed low down payments on 2-4 units, but it requires the property to carry itself — the rents have to cover principal, interest, taxes, and insurance. With home prices and rates where they are, that test has become very hard to pass. Conventional doesn't have it, which is why this change opens the door for buyers FHA was shutting out.
- **Bigger properties get bigger loan limits.** The conforming limit rises with unit count, so a fourplex is not automatically out of reach. In a standard-cost area for 2023 the baseline limits were **$726,200** for one unit, **$929,850** for two, **$1,123,900** for three, and **$1,396,800** for four. High-cost counties like Los Angeles and Orange run higher.
- **FHA now lets ADU rental income help you qualify.** If the property has an accessory dwelling unit — a detached guest house, or a converted garage — you can now count roughly **50% to 75%** of the rent toward your debt-to-income ratio. A detached unit counts at the higher end than an attached one, and prior landlord experience helps too. Before this, none of it counted.
- **You can buy a home for a disabled adult child or an elderly parent on primary-residence terms.** Not a second home at 10% down, not an investment property at 20% down — Fannie Mae treats it as a primary residence, which means as little as **5% down** and primary-residence pricing, even though you live somewhere else and already have your own mortgage. There's no distance limit; the house next door to you counts. You do have to qualify for both housing payments on your own income.
- **Why the parent and disabled-child rule exists:** for people whose income — Social Security, a pension, or none at all — won't support their own mortgage, but who need their own space. It has been on the books a very long time and almost nobody talks about it.

## Chapters

- 01:00Three guideline changes on today's show
- 04:00The old rules: 15% down on a duplex, 25% on a 3-4 unit
- 05:00Why FHA was the only low-down-payment option — and its catch
- 06:00Fannie Mae's change: 5% down on owner-occupied 2-4 units
- 07:00Reading the guideline: 95% LTV and CLTV from November 18
- 09:00Loan limits rise with the number of units
- 13:00Why the FHA cash-flow test has become so hard to pass
- 14:00What an ADU is, and why the rent never counted before
- 16:00FHA's new ADU rental income rules: 50% to 75% usable
- 20:00The option nobody talks about: buying for family
- 24:00Buying a home for a disabled adult child at 5% down
- 26:00Buying a home for elderly parents, with no distance limit
- 28:00What you still have to qualify for — and how to reach the team

### Run the numbers on a 2-4 unit with 5% down

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Full transcript (lightly edited for clarity) 

*Auto-generated captions cleaned for readability. Commercial breaks and repeated housekeeping have been trimmed; licensing information appears at the bottom of this page.*

### What's on today's show

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and I'm always trying to bring you more information, updated information — what's going on in mortgage and real estate, where the market is headed, what's happening with rates. Today I have updated guidelines that are very exciting. We're going to talk about 2-4 unit properties and how Fannie Mae is doing their part to make property more affordable for first-time home buyers. We're also going to talk about FHA's changes to rental income guidelines for ADUs. And then I want to remind everybody about an option available with Fannie Mae for purchasing a property for adult disabled children, or for elderly parents who can't qualify for a property on their own.

### The old rules on 2-4 units

Previously, you had to have a minimum down payment on a 2-4 unit property even if it was owner-occupied of 15% down. And it didn't stop there: 15% down was for a duplex, a two-unit property. It was actually *25% down* for a three- to four-unit property.

So if you're a first-time buyer and your thought was, hey, it would be a great idea to buy a three- or four-unit, live in one of the units, and collect rent on the others to subsidize my mortgage — first property, subsidizing rents, rental income, being an investor all at the same time — that's a great thought process. But the only opportunity you had was with FHA.

Now, FHA is fantastic. You can get into a 2-4 unit property with as little as three and a half percent down. FHA is fabulous. But they have a guideline that says the property needs to be able to carry itself. What does that mean? It means the rents that come in on that property need to be sufficient to cover the entire mortgage payment: the property taxes, the homeowners insurance, the principal, the interest, the whole ball of wax.

Conventional is nice because they don't require that. You don't have to worry about that cash flow test the way you do with FHA. But conventional had those bigger down payment requirements. That's what just changed.

### Fannie Mae's change: 5% down, effective November 18

Fannie Mae is coming out and saying they're trying to make it more affordable for home buyers to jump into the market. So beginning on November 18, they are rolling out the new program where you can get into a 2-4 unit property with as little as **5% down**.

Hear me out on this, because it matters: 5% down is for *owner-occupied*. That is not for an investor. Investors, you're still going to need 25% down on those 2-4 unit properties. But if you're an owner-occupant — your goal is to purchase, rent out the other units, and live in one of them — you will be able to get in with as little as 5% down, and not have to worry about that cash flow issue you'd run into with FHA being the only low-down-payment option.

I pulled the guidelines, and here's roughly what they say. On November 18, with the update to Desktop Underwriter — that's the computer system we run the loan application through to get the approval — they're making two changes to underwriting policy in support of their mission to facilitate equitable and sustainable access to homeownership and quality affordable rental housing across America. First, they are increasing the maximum allowable loan-to-value, and the combined loan-to-value if there's a first and a second, to **95% on 2-4 unit principal residences**.

### Loan limits go up with the unit count

You might be thinking: when I get into a three- or four-unit property, those buildings are going to be so much more expensive. Maybe I can't get the financing. Maybe I'll be capped out on what Fannie Mae will lend me.

So remember that the maximum loan limit for a one-unit property increases for two units, gets bigger for three units, and gets bigger again for four units. The number of units you're purchasing gives you a different maximum loan amount through Fannie Mae financing. If you are in a standard area — not high cost, so not Los Angeles County or Orange County, but plenty of the places you're watching and listening from — the limits are:

- One unit: **$726,200**
- Two units: **$929,850**
- Three units: **$1,123,900**
- Four units: **$1,396,800**

Remember, these are the *loan* limits, not purchase price limits. You just have to come up with that minimum 5% down at whatever sales price you're purchasing at, or put more money down to get the loan size down to the limit.

I love that they changed this. I know there are many of you who wanted to go down that road, thought it would be a great option, and then found out it wasn't obtainable because you didn't have 25% down for a three- to four-unit property. This is definitely going to open up the opportunity for many more buyers to start looking at something they can live in and rent out the other units.

### Why the FHA cash-flow test has gotten so hard

With prices of homes having gone up and rates having gone up, that FHA requirement that the property carry itself has become really, really difficult. You might still feel like it's a great opportunity to purchase a three- or four-unit — that your piece of the mortgage payment after what the other tenants cover would be a little bit more, but it's still a fabulous investment, which it is. But you can't qualify, because you don't have the down payment and the rents you're going to bring in aren't enough to carry the entire mortgage payment. All of a sudden FHA is out, and low down payments are out. So this new Fannie Mae 5% down is your option. It's a great option, and we absolutely love it.

### FHA and ADU rental income

FHA also came out with updated guidelines — this one landed a couple of months back at least, but I haven't touched on it here in a while, so I want to bring it to your attention.

What is an ADU? An accessory dwelling unit. It could be a standalone unit like a guest house in the backyard. It could be a converted garage — work you did, or work somebody before you did — that is now an ADU.

Here's what used to happen. If you lived in the property, converted your garage, and were renting it out for, say, $2,000 a month, and you came to do a refinance, we could not use that rental income to help your debt-to-income ratio. Same on a purchase: if the property had a guest house you planned to rent out, or already had a tenant in it, or the garage conversion was set up and ready to go — we could not use that rental income to help your debt ratios.

FHA has changed that guideline. They will now allow us to use rental income you would receive, or that the property is already receiving, to help you qualify. That's fabulous news. If your goal is to find a property with a tenant to help offset some of your mortgage, and you're focused on finding one with an ADU, you're probably going to end up at a higher sales price than an equivalent property without one — let's face it, the ADU adds value and makes it more expensive. But even at a higher price, the rental income can reduce what you're actually putting out every month, and now it helps you qualify for that higher price too.

We can't use all of it. Not 100% of the rental income. It depends on the type of unit: if it's *detached*, we can use a higher percentage than if it's *attached* — a converted garage attached to the dwelling gets a lower percentage of the total monthly rent. And if you have a history of being a landlord, we can use a little more than if you've never been one. Either way, somewhere between **50% and 75%** of the rents that could be received, or are being received, is what we can use to help you qualify. That's a really big deal, and a fabulous change.

### Buying a home for a disabled adult child or an elderly parent

The last thing I want to talk about isn't new at all. It's been around a very long time, it's still allowed, but almost nobody talks about it — and I think it's really important for everybody to know.

If you have a disabled child, an adult disabled child, who needs to get out and be on their own but isn't in a financial position to qualify to purchase their own home — or if you have elderly parents who need their own place and their own space but don't qualify for a mortgage — there's a way to do that. And you don't have to put down the extra money a second home or investment property requires.

To be clear, we're talking single-unit properties here: a condominium, a townhome, a single family home. Not 2-4 units. Normally on an investment property you'd need a minimum of 20% down, and on a second home or vacation property you'd need 10% down.

With this rule, where you've got an adult disabled child — someone who has been medically deemed disabled — maybe they're ready to have their own place and a little bit of freedom. I'm a mom of a child with autism. He's seven, he's non-verbal, we're not potty trained, we don't brush our own teeth, we don't clothe ourselves. We've got a lot of work ahead with my little guy. But I can see a day in the future when he's an adult and he's ready for some independence, maybe with a coach living with him. He's the perfect example of a disabled child that you'd want to get his own little condo or townhome, so he has his own place — and I don't necessarily want to have to put 10% or 20% down to buy it, because I'm the one footing the bill and making the payments.

In that situation, if he were an adult, I would be able to buy him a place just like a primary residence. I could get a Fannie Mae loan with as little as 5% down, and primary-residence interest rates. Everything about the program would be based on primary-residence guidelines — better rates, lower down payment — even though I live somewhere else and already have my own mortgage payment.

You can also do this for elderly parents. If you're trying to get them closer to you so you can take care of them, stop by more often, make sure they're taking their meds — but they're not ready to live with you and you're not ready to have them live with you, because everybody wants their independence — you could buy the house right next door. There's no limitation on how far away the property has to be. It's not a second home for you and it's not an investment property for you. It's a property you're purchasing for your parents. Maybe they have Social Security, maybe they have a pension, but the income isn't enough for them to qualify for financing on their own. You have that same opportunity: as little as 5% down, primary-residence rates, and you help them find that property and get closer to you.

The one thing you do have to do is qualify for the debt. You need to be able to carry your own mortgage payment and this new housing expense — your income has to support both. But as long as you can qualify, that opportunity exists.

### Wrap-up

This has been around a very, very long time and it just hasn't been a big subject — I haven't talked about it here in probably three or four years. So I wanted to make sure everybody knows it's out there. If you've been thinking about doing something for an elderly parent or a disabled child and you thought you needed a big down payment, now you're hearing from the Mortgage Mom that you don't.

If you want to know when I go live, text the word LIVE to 844-935-3634 — one text a week with the topic and a link to join, no spam. That's also the office number if you'd like to talk with me or the team; we answer seven days a week, and if we can't pick up, leave your name and number in the general box and we'll call you back. At mortgagemomradio.com you'll find the calculators, the weekly newsletter, the podcast archive, and you can book a phone appointment right on the site — pick a day and a time that works for you, and if you need early morning or late evening, we have team members in different time zones to cover it. I'll be back next Wednesday at 1 p.m. Pacific. Talk to you all real soon.

Debbie Marcoux is licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, NMLS ID #237926, and additionally licensed in AZ (0941504), FL, GA, HI, ID, IL, NV, NC, OR, TN, TX, and WA. Rates and figures discussed were current as of the air date of October 25, 2023, reflect national conforming averages, and are not an offer of credit or a rate quote. Debbie Marcoux is not a financial advisor; consult qualified professionals about your individual situation.