Fannie Mae dropped down payment requirements for owner-occupied two-to-four unit properties as of November 18,2023. The minimum down payment is now five percent for two and 3-4 unit properties: ten and 20% decreases respectively. The GSE said the move is designed "to increase access to credit" and "provide support for affordable rental housing." This move could help more aspiring landlords get started, but it may also provide seasoned investors the ability to leverage their cash; however, neither of these results guarantee an increase in "affordable rental housing." Fannie's bold changes may help struggling renters, but there are other groups that these relaxed multi-unit underwriting standards could benefit that were not mentioned in the announcement: multi-generational households.
A growing number of consumers find themselves in what's called "the sandwich generation," which refers to mostly middle-aged Americans who have older parents who need assistance and children under 18. The University of Michigan estimates there were 2.5 million sandwich households in the U.S. in 2022. Additionally, the National Association of Realtors (NAR) Profile of Home Buyers & Sellers found that 14% of all buyers were multi-generational households in 2022 and 2023. Drilling down a bit further, Pew Research found that 24% of Asian, and 26% of Black and Hispanic households were multi-generational, compared to 13% of White households. Generations who choose to cohabitate share financial and other responsibilities such as caring for children, ill or elderly show a willingness to examine their situation, plan and commit to a course of action. That's what every loan officer and real estate agent wants prospective buyers to do! Families who pool their resources are great candidates for outreach, education, and lead-nurturing.
Multi-generational households may have low-to-moderate income (LMI), but that doesn't exclude them homeownership opportunities; however, down payment is consistently cited as a major barrier. Multiple generations who band together as a household can do the same to work toward homeownership, and Fannie's new lower down payment thresholds for multiple units greatly expands their opportunities. A multi-generational household might choose to buy a four unit property to live in two and rent the others; or they may partner with other extended family members to occupy the whole building. In addition to ethnic factors, Pew's generational research mentioned that "immigrant status is linked to the likelihood of multi-generational living," which indicates that majority minority census tracts (MMCTs) are good areas to mine for multi-generational households as buyer prospects.
Though there's no guarantee that multi-generational households (or any buyers) who take advantage of Fannie Mae's lower down payment requirements to buy multi-unit properties will offer what the GSE considers to be "affordable rental housing" to the broader market, they can reap the classic benefits that homeownership provides themselves. Fannie Mae gave the housing industry a tool to help more families build worth and wealth through homeownership. Let's put it to work!
Jeff Walton is CEO of InGenius. With over 35 years in home mortgage and as a CEO and President of large national mortgage companies, Jeff is focused on helping the industry achieve high performance using actionable intelligence. Interested in learning more? Book an intro call with InGenius Data.
