Buying a multi-unit home means you can build home equity AND generate rental income, all with one mortgage. Freddie Mac’s LTV ratios for multi-unit homes are now higher, which means down payment requirements are lower. You now have more accessible opportunities to plant the seeds for generational wealth. Here’s what changed:
- Before: 15% minimum down for 2-unit homes, and 20% for 3–4 units.
- Now: Just 5% down for all 2–4 unit properties.
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For example, if you were eyeing a $400,000 duplex, you used to need at least $60,000 down. Today, you can get in with $20,000.
In this blog, we’ll break down exactly what this means for your homeownership journey. But first, let’s clear up any confusion around why LTV matters and what Freddie Mac has to do with you.
What is LTV?
Loan-to-Value ratio (LTV) is the percentage of your home’s value that you’re borrowing compared to how much you’re putting down. If you’re buying a $300,000 home with a $30,000 down payment, your loan is $270,000. Divide that loan by the home value, and you get a 90% LTV. Your down payment percentage is 100 minus the LTV, so in this example, 10%.
Why does it matter? Because lenders use LTV to gauge risk. A lower LTV signals that you’ve got more equity in the home, which usually means lower rates. A higher LTV means less upfront equity, so the lender takes on more risk.
Who is Freddie Mac?
Freddie Mac is the common name for the Federal Home Loan Mortgage Corporation. They’re one of the biggest players in the mortgage world. They don’t lend money directly, but they set standards that many lenders (including Cardinal Financial®) follow when approving loans. Freddie Mac LTV guidelines outline how much of a home’s value can be financed under different programs. These limits matter because they determine which programs you qualify for, and what your path to homeownership looks like.
So, why does Freddie Mac’s LTV matter to me?
Increased LTVs on multi-unit homes mean expanded access to wealth-building opportunities that were previously out of reach for many borrowers.
- Lower upfront cash barrier: Families and first-time buyers with limited savings can step into homeownership sooner.
- Rental income as a tool: By living in one unit and renting out the others, buyers can offset their mortgage costs and generate passive income (pending restrictions from Freddie Mac related to borrower eligibility).
- Wealth-building pathway: Every monthly mortgage payment builds home equity, and rental income creates cash flow that accelerates financial stability.
Let’s make it real with some common homebuying scenarios.
Young First-Time Buyer in a High-Cost Market
A recent graduate wants to purchase a duplex in a city where single-family homes are priced out of reach. By living in one unit and renting the other, the rental income covers a portion of their monthly mortgage. With only 5% down, they can buy sooner, start building equity, and enjoy stability versus renting.
Multigenerational Family
A borrower purchases a 3–4 unit property with 95% LTV financing. They live in one unit, house their parents or adult children in another, and rent out the remaining units. This setup reduces overall family housing costs while keeping generations together.
Single Parent with Limited Savings
A single parent buys a triplex with a 5% down payment. They occupy one unit while renting out the other two. The rent from those units helps them afford childcare, school costs, and builds a path toward long-term financial security.
Teacher, Nurse, or Public Service Worker
A community worker (such as a teacher, nurse, or firefighter) purchases a 2-unit property. Their income alone wouldn’t stretch far enough for a traditional single-family home in the area. Rental income from the second unit makes the mortgage affordable and keeps them housed near their workplace.
Starter Investors
A young couple buys a 4-unit property with 5% down. They live in one unit while renting the other three. Over time, they move out, convert the original unit into a rental, and use the equity to buy another home. This creates affordable housing stock for renters while giving the owners a springboard into wealth-building.
Freddie Mac LTV Update: Key Takeaways
Freddie Mac’s expanded LTV ratios for 2–4 unit properties are a game-changer for families, first-time buyers, and aspiring investors. With as little as 5% down, homeownership, wealth-building opportunities, and financial stability are within reach for more people. And with the right lender, you can make the most of this opportunity with transparency and confidence every step of the way.
With as little as 5% down, homeownership, wealth-building opportunities, and financial stability are within reach.
