I have been a lurker on here for a few months and it's time I start asking the right questions. I'm 21 and in the middle of PA (physician assistant) school in MA.
My dad wants to buy a multi-family property in New Hampshire where he lives (probably the Manchester area) in the next 12-18 months because he just resigned his lease at his current apartment. His goal is to live in one unit and rent the other 2 paying his mortgage and principal down for 2 years before refinancing and beginning to scale. We really don't know too much about mortgages and that's where were having our biggest problem. My dad is great with hands on projects and I recently went and got my Mass Real estate license about 6 months ago.
My question to all of you!
1. What did YOU do to get started ?
2. What are any pitfalls you immediately see in his plan ? Is there something he is missing?
3. and additional tips about mortgages, etc, would be super helpful
Your mortgage is just the payment on the money borrowed (use an app to calculate) plus property insurance (call a a bunch of companies should be around $1500 a year if you have finished living area below grade aka basement get sewer back up) plus taxes (look them up by address on Manchesters website) and PMI if you don't have 20% to put down. Its not a big deal. Just like paying any payment. Use the Zillow mortgage app to see what is out there for rates. You get real quotes without running your credit
Hi Richard. If your dad isn't married to living in the Manchester area, he could look in the surrounding towns (for example, Goffstown, New Boston, or Weare) that qualify for a USDA Rural Development loan instead. That may be easier for him to get into since they are 100% financing. It depends on his income and credit rating, but if he qualifies for an FHA loan, he would likely qualify for a USDA Rural Development loan. The paperwork is a little cumbersome, but you can purchase multi-family units with it. I'm happy to answer any questions you may have about the process.
Having a real estate license is helpful somewhat but if you aren't actively using it and doing deals, the education side does not teach you much on looking at values and putting an offer together. Our state also requires you to notify the buyer/seller that you are a licensed agent.If he is considering living in one half or one of the units a good way to start out is using an FHA loan which only requires 3.5% down. FHA is good on single family and multi-family units(2- 4 units in the same building). Anything above that is commercial and will likely require a much larger down payment(15-25%) from most of the lenders I've talked to. Keep in mind you will have mortgage insurance for the life of the loan unless you refinance to a conventional at a later date. This might be a good method to live in the property for 2-3 years, refi and buy another with 3.5% down to live in. I've had clients be able to purchase multi-family units using a combo of FHA loan and get down payment assistance through local grant programs we have here in Central Ohio.Best of luck!!!
@Anne T. I may be mistaken, but I believe that the USDA Rural Development loan can NOT be used for owner-occupied MFRs.
This is a house hack!
Understand your finance options. Call a lender and discuss what programs you may be able to take advantage of
1. House Hack (3 units) -
2. No, just suffered from analysis paralysis like everyone does
3. You can look into programs less then 20% down.... Depending on your situation
@Charlie MacPherson . Hey Charlie. You are correct--it used to be only for SF homes. You can now apply for loans for multi-family, but you still have to meet their requirements (for example, provide housing for elderly/disabled, etc.). You can find a brief overview on the RD website here: https://www.rd.usda.gov/programs-services/multi-family-housing-direct-loans. I don't know if they restrict owner-occupied, but I can give the local RD office a call and find out if anyone is interested.
@Anne T. I ran this by one of the lenders I use and they also believe that USDA for MFRs is not allowed for OO properties - which is odd, as it is ONLY for OO SFRs.
If you talk with your local RD folks and find out differently, I'd really appreciate hearing about it.
@Charlie MacPherson , yeah, I'll check tomorrow. I can't find anything that explicitly restricts owner-occupancy in any of the RD documents. But it does require sifting through a lot of regs. LOL
Easier for me to call... I'll let you know what I found out.
@Patrick Flinn I actually work as a Realtor in Boston where I go to school at the same time, which is helping me gain some experience in the field in that sense. The plan is to House hack with 3.5% down I believe. Thanks for the info!
@Steve Bracero That's the plan! and thanks!
@Richard Charity . I haven’t done an RD for multifamily. I actually bought my home with the RD Direct Loan program after my divorce, though. Those of us in the Northeast think USDA=farm. Lol I actually had the same reaction you did when I found out about the program.
The USDA Rural Development program is based on population density. While Nashua and Manchester do not qualify, surprisingly the vast majority of NH does. As I said, Goffstown, Weare, pretty much 98% of the rest of the state. It’s just how they wrote the rules.
The RD program is designed to stabilize “rural” communities, where income opportunities may be less (along with payscale in general). You don’t want everyone moving to the city and abandoning hundreds of thousands of square miles in between. A healthy economy depends on diversity, and especially support for those large swaths of land used for farming—those little towns like Hollis and Brookline. Thus, the RD loan program exists to encourage people to live in small towns.
There are a lot of requirements and—as with any federal program—a ton of paperwork. Both the person and the property have to qualify.
Anyway, I didn’t have a chance to call the office today for clarification on whether the multifamily unit loan program allows owner-occupants. I can’t see why they wouldn’t since you would have to hire a management company if your are not on-site, and that may be more cost-prohibitive than simply being there. I’ll find out more and get back to you.
USDA is equivalent to FHA as far as appraisal for condition goes. No peeling paint, cracked windows, loose railings, etc.
The danger in any $0 down loan is that sellers fear that the buyer has no skin in the game and could blow out of the deal if a better property came along tomorrow, losing only their $500 down payment.
USDA and VA are weaker offers compared to FHA, which is a weaker offer as compared to a conventional loan with a larger down payment.
@Richard.. I meant no disrespect to education. I myself am working on a graduate degree in business. I just meant that what you learn in real estate school doesn’t always translate to real world practice.
@Patrick Flinn No worries! I wasn't upset by what you said! From what I wrote it sounds like I went out and took a class for no reason and wasn't working in the field. But you are 100% correct that it doesn't always translate. I have no practical knowledge really on how mortgages work and the different options. I've really only worked with sellers and renters.
@Anne T. I had no idea they would consider these areas rural. I actually grew up in Hampstead and went to Pinkerton Academy in Derry so I know exactly what you are talking about! thanks so much!
You no longer can do USDA loans for multi-families, I just bought an owner occupied duplex in June (in a Town that allows USDA) and I had to go with an FHA loan
@Richard Charity House hacking is almost always an amazing way to get started in real estate. The only real pitfalls that I have heard and can see that side of the argument for, are living next to your tenants and your inability to move around as freely as renters.
I'm assuming, however, your father does not plan on moving around a lot anymore, so as long as he is aware of, and prepares himself for the potential challenges that come with living next to your tenants, it should be a solid plan!
I am still currently looking to house hack as well.
@Charlie MacPherson , @Richard Charity , @Tucker McCarthy -- I spoke with the USDA rep in Concord. She confirmed that they are only servicing existing USDA RD multi-family loans and are not issuing any new loans. I did respond to see if I can find out if that is only a New Hampshire-specific problem, or if the program is no longer accepting new applicants anywhere in the U.S. Again, I'll let you know what I find out.
Also, the original program did not allow for owner-occupied housing as far as she knew, but she could not direct me to the specific regulation (and I was unable to find it myself). If anyone knows the Reg #, I'd appreciate it if you would forward it to me. Thanks!
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