Apartment and FHA loan on first 2-4 unit property?

Question

Hello everyone! So here's my situation: I just signed a new apartment lease but I'm not going to let that hold me back from purchasing my first property... My questions is this: when it comes to and FHA loan, is it possible to retain an apartment lease and utilize an FHA loan to purchase a 2-4 unit multi family property? I know that FHA has a requirement of living on property as an owner/occupant for a minimum of 1 year. Would that requirement be satisfied if I lived in the property for 4days out of the week and then utilize the apartment the other 3 days of the week? Would I be in some sort of violation of that requirement if I did that, or maybe in violation of another requirement that I'm not aware of?

Thanks!

Omar Khan · Answer

@Samuel Ruelke As long as you have utilities bills and proof that you used the FHA-loan building as your primary residence, there is no rule disbarring you from renting another apartment. You will be gaming the system if you think you can put a "room mate" in one unit and charge them the rent. You could get into trouble (very remote chance) if the lender gets an inkling.

Secondly, why just use the FHA loan? Why not go through conventional financing? In major markets, conventional products are offering equal or better terms than FHA. People get fixated on the 3.5% down, but in Dallas you can get conventional lending at 3-5% with way better terms (plus you are not saddled with MI once you go past 20% unlike FHA).

If you're a new investor, I would urge you to wait a few months. Start attending your local REIA meetings, connect with local investors and educate yourself (BP and otherwise) before taking the plunge.

Anthony Angotti · Answer

@Omar Khan the loan programs that I looked into would not do less than 20% for a "conventional" loan that is on a 2-4 unit. Only on single family homes.

I did find a portfolio lender that would do 10% down if owner occupied at a prime + 1 rate though. With a 6 month owner occupancy requirement. I did that for the first two before doing FHA for the 3rd.

Anthony Angotti · Answer

@Samuel Ruelke

If you do that you would want to make it your primary residence to avoid Mortgage Fraud (move mailing addresses there, put your furniture there, actually stay there as you said you would etc). As long as you are living there and not renting the unit out you should be OK, but confirm with your mortgage professional. I've house hacked 3 buildings so I've dealt with this for each. Some involved Renovations so I moved the utilities to my name while I fixed them up and lived there the majority of the year. I had a room at the property, but still split my time between the old place and the new place while I fixed it up. So I was fine.

Shawn Mcenteer · Answer

FHA wants you living in the property for majority of the year.  Proof can come in form of bills; electric, gas, cable etc.

Samuel Ruelke · Answer

@Anthony Angotti  Thanks for the response! so i definitely want to avoid mortgage fraud...don't want to go down that path in the least bit...  but what i'm hearing you say is that the FHA doesn't have an issue with you being responsible for another property as long as the property that the loan is under is considered your primary, is that correct?  And proof that it is your primary residence is living in it for the majority of the year and moving utilities & other house hold items into your name during that time.

I will definitely be following up with my lender to verify these items, but its nice to hear about it from other individual's experiences/knowledge as well.

@Dr. Jordan E Smith  Thanks for the response! Its awesome to hear that you had a similar question and were able to gain and share some insight from your mom. The beginning certainly is very exciting, and I wish you good luck as well!

Anthony Angotti · Answer

@Omar Khan FHA programs or state specific programs do, but your typical out of the box FM loan typically won't take it on from everything that I've seen.

Dr. Jordan E Smith · Answer

@Samuel Ruelke I'm very glad you asked this question as it seems we are in the exact same point of our investing career.. the exciting beginning.

My mom is a real estate agent and I literally just called her and asked her the same question. She said the same thing everyone else seems to be saying which is yes you can qualify for a 2-4 unit with an OO loan if you live there the majority of the year. This is apparently defined as at lease 6 months and 1 day, so what you described 4/7 days would get you there. Like a few others said, they don't usually send people driving by the place to check if you're actively living there (although they legally can according to the research Ive done) but they can and might check utility bills to make sure they are in your name.

It seems like a good idea to check with the lender to make sure the utility bills are the only proof they will need and let them know that you will be there most of the time and certainly not renting out the 4th unit.

Again, I have no experience in real estate yet! My response is only based on what my mom told me as well as other research I have done. My next move is to work on prequalifying for a loan and find a mortgage company or lender that will give me the best possible mortgage - whether that be 3.5% down or 20% I want to weigh the options when looking primarily at monthly cash flow.

Good luck to you!

Omar Khan · Answer

@Anthony Angotti My last experience was 8 months ago. I think you might have to shop around, maybe the loans do not exist in your market or the market has considerably tightened. I like your strategy of going through a portfolio lender as well.

@Samuel Ruelke In house-hacking you are actually living in your property full-time. Your issue, potentially, could be that you are maintaining 2 residences whereas your mortgage contract explicitly states that you are occupying the property as your primary residence.

Either way, seems like you are on the right track by connecting with local investors (the best education) and learning through BP and other resources.

Best of luck!

Samuel Ruelke · Answer

@Omar Khan  Thanks for the reply.  I'm not sure what you mean by "gaming the system" by putting a "roommate" in one unit and charging them rent...Is it the same as if I were to buy a duplex, live in one unit and rent out the other?  Isn't that essentially the same as "house hacking?"

I wasn't aware that you could get conventional financing for less that 20% down. The only attraction I have to an FHA loan is the low barrier to entry of 3.5% down. Also, I thought mortgage insurance only had to be carried up to the point where you reach 20% of the property's purchase price (80% LTV?)... are you saying that's not the case?

I am a new investor (haven't purchased a property yet). I have been reading/listening/learning like crazy for the past 3 months though and going to start attending some local REIA meetings.  Will most likely have some time between now and my first purchase to learn even more.  Thanks!

Shawn Mcenteer · Answer

@Samuel I have not done the above strategy but I have spoken to my lender about different options and try to stay fluent with lending option so I can better assist client needs.

Also I agree with @Omar you should look into conventional mortgage.  You can find similar terms, whats great about convention is PMI will go away without having to refi.

@Samuel Ruelkeundefined

@Omar Khanundefined

Apartment and FHA loan on first 2-4 unit property?

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