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Ask Dr. Don

Owner-occupied refinancing

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?
Manfred Mortgage

Dear Manfred:
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 property.

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

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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 mortgage 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 Web site.

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

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See Also
When should you refinance your mortgage?
Refinancing: Get it while it's hot
When refinancing activity booms, watch out for mortgage tricks


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