||Ask Dr. Don
Dear Dr. Don,
We want to refinance our four-unit, owner-occupied apartment building.
Conforming would be up to $550,000. If I apply at several online
lenders, they only show us rates for jumbo loans. What can I do?
You're right in stating that you're not looking for a jumbo loan.
Jumbo loans are loans that exceed the conforming loan limits for
The conforming loan limits for 2002 are: $300,700
for single-family properties; $384,900 for two-family properties;
$465,200 for three-unit dwellings; and $578,150 for four-unit buildings,
slightly higher than the $550,000 you say in your letter. The conforming
loan limit for 2002 are: $300,700 for single-family properties;
$384,900 for two-family properties; $465,200 for three-unit dwellings;
and $578,150 for four-unit buildings
Even though you are looking at a property with four
residential units, in terms of mortgage lending the loan is considered
a single-family loan. As an owner-occupied property, your loan will
have a lower interest rate than a non-owner occupied property.
Loan limits are only one part of the equation; another
component is the required down payment on the loan. The loan programs
that I found in my area require a 20-percent down payment. I found
the loan programs by searching for local lenders using Bankrate's
search engine and clicking through to lenders' Web pages and
reviewing their one- to four-unit loan programs.
Consider using a mortgage broker to help you find
the right loan for this property. This Bankrate feature, Your
Mortgage Broker "to-do" list, can help you choose
and use a mortgage broker.
Loans originated under Fannie Mae guidelines also
require two months of reserves for principal, interest, taxes and
insurance (PITI), while a Freddie Mac origination requires six months
worth of PITI reserves.
There is an FHA program for one- to four-unit dwellings,
but the loan limits are fairly restrictive. You can look up the
FHA loan limits in your county on this HUD
With conventional financing, the lender will assess
the risk of the loan based on your credit score, income and the
property's projected rental income based on an operating income
statement. The status of the lease agreements for the rental units
will also influence the lending decision.
Multiple loan applications should be concentrated
in a 30-day period so it's obvious to lenders reviewing your credit
report that you're comparison shopping. Stringing it out over a
longer period can hurt your credit score and your ability to get
a better interest rate.
-- Posted: Nov. 28, 2001