House Hack Your Way to Your First Rental With These 4 Loan Products

As someone who is starting out in investing in rental property, you may not have the money to buy a property in cash or even to purchase a property with the typical 20% down payment needed with conventional financing.  But, that doesn't mean that you can't invest.  One of the easier ways to enter the world of investing in buy and hold properties is to purchase the property as a primary home, meaning you will live there for a certain period of time, and then turn it into a rental when you move.

With this option, you will be able to acquire a loan with less money down and ultimately build a rental portfolio with less capital up front.

If this is an avenue you may pursue check out the five loan products below that you should consider when house hacking into the rental property niche.

FHA

• An FHA loan is a product of the federal housing administration that is available for those buying a owner occupied home.  It requires a minimum of 3.5% down and is one of the most popular loan products. However, as a result of putting less money down you are required to pay private mortgage insurance (PMI) which adds to the monthly payment you will pay each month.  

203K 

• The 203k loan is also under the Federal Housing Administration and is a product that allows you to roll some rehab costs into the loan. With the regular 203K loan you are able to roll in structural rehab costs which are often not allowed in other loan products.  For this type of loan you must have a minimum of 3.5% down, same as the FHA loan.  However, as with the FHA loan you also have to pay the monthly PMI as a result of putting a lower down payment into the property.

203K Streamline

• The 203K streamline follows nearly all of the same guidelines as stated above; however, with this loan product you are only looking at rolling in cosmetic rehab costs into the loan.  For instance, with this loan you could roll in paint and carpet, but not moving walls or adding additions to your home.

VA Loan

• The VA loan falls under the Veterans Administration and is a product that is available for active and reserve military members.  One of the borrowers on this type of loan must be a military member.  The best part about this loan is that, in most cases, you can access this loan with 0% down.  So, if you're an active military member and move frequently you could purchase homes in your assigned area, then when the time comes to move you can turn it into a rental and do it again.  With this loan, you don't pay a monthly PMI but an up front funding fee.

So, the moral of the story is that you can enter the world of real estate investing even if you don't have a large amount of cash.  It is a possibility for anyone who wishes to pursue it.  One of the least expensive ways to do this is with house hacking!