House hacking with no down payment.

7 Replies

My wife and I are currently living in an apartment 5 minutes from downtown Redlands, CA. We are looking to purchase a Multifamily (preferably close by) to use as a house hack within the next 3-6 months. Then put away the money we save from not paying rent into a savings fund for our next deal. Thing is, we don't have anything saved up and I am wondering if anyone has some advice on how we can get the down payment covered as well. I'd like to use either an FHA or 203 K loan.

I'm open to any constructive criticism or comments you have on this subject. I'm brand new to the world of real estate investing. But I'm excited to learn and grow along the way! 

Hey Cory,

Great to hear you are looking to get started. In your situation, I would not recommend you jump into a property until you have some savings in the bank. While its great that you can get into real estate with low money down, it will still require money for a few reasons:

* The bank will require you to have reserves in the bank (Maybe 6 months worth)
* You do not want to stretch yourself so thin that you are just getting by 
* Things break on/in houses. You want to make sure you have something save up for when those days come
* Vacancy. If you pick up a multifamily in an expensive market, having vacancy will hit you hard, especially if your renters are no longer covering the mortgage. 

My recommendation, speak with a lender on what will be required in order to purchase a property via an FHA. From there start your plan of attack. If they tell you, you need X amount for a down payment and reserves then there is your target. I know you probably really want to pick something up, but you have to be patient and be smart about it.

You are on your way. Keep chasing after it and good luck! Let me know if you have any questions.

@Brandon Rush Thank you for your reply! You've defiantly made some good points. I'll look into connecting with a lender so I can find out what would be required to get that FHA loan. Then I should at least be able to have a goal set in my mind. Theres no doubt I am eager to begin house hacking but I want to do it in a smart and calculated way. Thank you again, Brandon, for the advice and encouragement!

Hey Cory, awesome to hear you're looking to start house hacking. FHA and FHA 203k loans are great options for putting down a low 3.5% down payment.

If that's still too much for you, Bank of America is essentially giving away free money through their down payment assistance programs. As far as I know, this works best for conventional on a SFH. In most areas, you can get $10k for you down payment and $7.5k for your closing costs. Most DPA programs have higher rates and fees but the only real downside i see to this one is that you have to work with bank of america lol. The city of Redlands should most definitely qualify for this. Can't hurt to talk to a local lender about it!

Hope this helps

Mortgage Down Payment Center (bankofamerica.com)

@Cory Shea , as Brandon mentioned, no money down is one thing, but no money saved is another. In practice, most transactions in today's market are going to people with very significant down payments, as it lowers appraisal risk for the seller.  Behind that, many deals are trading with no inspections, which again is simply a capital risk waiting to happen.

Lets assume you get an offer accepted that is almost no money down, and with an inspection contingency, the inspections will cost a fair amount of money up front, and are not guaranteed to catch everything.  A roof that looks to be in good condition, could have some bad flashing that costs a couple thousand dollars to repair/replace.  In a four family, you have 4 refrigerators, ranges, at least 4 toilets and tubs, potentially 4 water heaters, furnaces, maybe AC units, that are your responsibility, and even if inspected does not guarantee they won't go out next month.

House hacking is a great way to save money, but remember you are still a landlord and real estate owner.  Real estate is a capital intensive business, that can be very profitable, but there are on going costs that you need capital available, when those expenses hit.