House Hacking FHA Downpayment Strategy

8 Replies

I'm looking to purchase a 3-unit multifamily next year that I would occupy 1 unit of and rent the other 2. I will finance using an FHA loan and I know the minimum downpayment is 3.5%, but putting so little in minimizes cash flow. The most I would be able to put down would be 7% and I'm trying to figure out if I should put the 7% in for the downpayment or just put 3.5% and hold the other 3.5% towards other investments/future property. (For this scenario, please assume closing cost will be covered). Any advice much appreciated!

I’m in a similar situation and I️ would like to know what to do as well. Sorry I️ am of no help but I have heard of having two properties using the funds you could have used for one property. That way you have one property that produces cash flow and one that you break even, cash flow, or pay very little rent.

There are certain loopholes in securing a second FHA loan, if you prove after a year that your job moved you over 100 miles is the most common.

Originally posted by @Juli Becker :

I am not completely sure about this, but I heard you can only do one house hack using an FHA loan with 3.5% down at a time. https://riverbankfinance.com/blog/can-i-have-2-fha...

I suppose then you would have to do a 5% down conventional loan for the second investment property. 

 Thanks Juli, yes I know I would need more for a second property. I'm more just trying to figure out how much money to tie up in the downpayment for my first property.

@Priscilla Paul

Congrats on making the move to purchase your first multifamily. In these markets out of NYC and Jersey cash flow will not be great at 3.5%. My suggestion would be to buy the property with 3.5% down, but do your numbers for cash flow based on 25% down. I would pay down 20 to 25% of the balance as soon as possible, then refinance from and FHA to a conventional and get rid of PMI and then use FHA all over again after 2 years. I hope that makes sense.

Cash preservation is key to this business.  You can always find deals, coming up with down payments can be a challenge.  If you have the down, there is almost always someone wiling to finance.

I would only put down the 3.5% and keep the cash. When you have 20% equity in the property I would consider a refi. You will need to look at the current rates and consider an equity loan. Fannie / FHA is the cheapest money you will ever borrow, get as much of it as you can!

@Priscilla Paul  

Welcome to BP!

You'll need some working capital to make improvements and potentially BARRRR your unit. Don't spend all your ammo (7%) on one shot, because if a costly CapEx expense comes up or something unforeseen happens, you don't want to have to start using costly credit cards for operating expenses :)

Good luck! Hope you can find a property at a discount. In your area, MLS is pretty difficult. You can look into driving for dollars and DM to look for some deals.

Thanks so much for the advice! Super helpful, I'll put the 3.5% down and hang onto the cash for other investments such as other properties and stocks. I also have a 3 month emergency fund to cover any unexpected costs and will set aside 15% of the rental income for vacancy and maintenance costs.

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