Currently house hacking, how do I move to my next Multi family

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Currently house hacking, how do I move to my next Multi family

Joel Cruz
Member since 2018 · 3 posts · 1 vote

Hello everyone! I want to thank everyone ahead of time for taking the time to respond my post. 

I am relatively new to bigger pockets.  I read a ton of content on the internet but this place is a one stop shop for information. I Found out about house hacking via bigger pockets... and boom 4 months later found a great cash flowing deal and now living rent free. 

The problem is that I think I reached a credit limit with just this one 3 unit property... how do I transition to the next multi family without some how doubling my income to qualify for more money?  I feel that there are several deals around I want to take advantage but I need the higher limit to get in on them. It's hard to sit and stare opportunity in the face. 

Am I being too impatient? Can any one share how they transitioned from a multi family FHA loan to their next property?

I appreciate any advice, thanks again for your time!

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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
8y

@Joel Cruz I often tell my clients not to use FHA for the first deal. The best 1-2 punch is to use a 5% down conventional loan to buy a 3 or 4 unit. From there, you can use your FHA loan to purchase the second property.

In your shoes, I would refinance the first loan into a conventional loan as soon as you can. This will free up your FHA loan. As long as your first property is cash flowing well, you should be able to go house shopping around 6 months after you purchased the first property.

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    8y

    @Joel Cruz I often tell my clients not to use FHA for the first deal. The best 1-2 punch is to use a 5% down conventional loan to buy a 3 or 4 unit. From there, you can use your FHA loan to purchase the second property.

    In your shoes, I would refinance the first loan into a conventional loan as soon as you can. This will free up your FHA loan. As long as your first property is cash flowing well, you should be able to go house shopping around 6 months after you purchased the first property.

    2Reply
  • Sung Park
    Rental Property Investor · Philadelphia, PA · Member since 2016 · 191 posts · 165 votes
    8y

    @Joel Cruz Not sure what you mean by credit limit. If your credit score is solid, you got a W-2 income stream, and you have the downpayment + additional funds to close another property, go for it. You don't need to double your income to get another mortgage cuz your rental income should offset the debt payment. The better lenders will take the actual and/or forecasted/appraised rental income from ur current property and apply it to your DTI at around a 75% rate. If the total rental income at 75% will cover the PITI, then you only need to be concerned with what your w-2 income can afford, assuming you have no other debt.

    2Reply
  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    8y

    It sounds like your debt to income is the issue. You will need to find a lender willing to use the rental income of the property you live in now, to offset the debt of the property. This will free up income to put toward your next purchase. Depending on the lender, they may want you to own and operate the rental for 2 years first. Not sure why someone suggested refinancing above. This may be near impossible if your equity has not increased. Just use a 5% down conventional for the next one, or research reasons to get a second FHA loan. I believe you are allowed two FHA loans if the second is more than 100 miles from the first or extenuating circumstances occur.

    2Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Joel Cruz I wholeheartedly agree with @John Warren suggestion of avoiding FHA for your first deal. It would be hard to refinance unless you don't have equity built up.

    Assuming you recently purchased the property and with the constraints you mentioned (debt to income ratio), it will be harder for you to justify buying a new property. 

    Best bet: Wait 6 months and then see your options. In the meantime, you should actively network with local investors/brokers/lenders/property managers and do market research. You might find a deal where the #s make sense and you can quickly move.

    2Reply
  • Joel Cruz
    OP
    Member since 2018 · 3 posts · 1 vote
    8y
    @John Warren thank you for the great advice! what's the disadvantage of starting with FHA vs conventional loan? I will admit that I may have purchased the home at a slightly higher MV than what the other comparable MF right on the same street, but the cashflow numbers were great after piti, and I was super eager to get into the deal because it is a new construction. I realize that some random comparable MF in my area has to sell for more than my purchase price, but if I end up underwater, could i still refinance out of FHA? could I even refi at all if I'm underwater? how difficult is it refinancing out of an FHA loan? what's the disadvantage for them to refinance me out of an fha?
    0Reply
  • Joel Cruz
    OP
    Member since 2018 · 3 posts · 1 vote
    8y
    @Andrew Boettcher thank you for the great advice! I didn't know you could have more than one FHA loan,but more importantly I didn't know that I could use my rental income to offset my liabilities to get into a 5% conventional. How realistic/obtainable is this? it seems too good to be true. why do people hit financing walls after buying several properties? how long do I have to/should i wait until I can get into a 5% conventional loan?
    0Reply
  • Rodney Sums
    Laveen, AZ · Member since 2016 · 584 posts · 528 votes
    8y

    @John Warren

    Please share more about which lenders out there offer 5% down on multi units

    0Reply
  • Rodney Sums
    Laveen, AZ · Member since 2016 · 584 posts · 528 votes
    8y

    Edit: aside from the Home possible program for 5% down on MF

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    8y

    @Joel Cruz there are no disadvantages to FHA, but if you don't start out using a conventional 5% loan on a 3 or 4 unit you really can't use one unless you put down the full 25% down payment. If you are under water or at value on an FHA property then you may have issues refinancing out of the loan. I am not a lender, and I refer all those types of questions to my main lender who knows every way in the book to move in and out of mortgage debt!

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    8y

    @Rodney Sums I believe the 5% down conventional program is the home possible loan you were referring to. 

    0Reply
  • Andrew B.
    Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
    8y
    Originally posted by @John Warren:

    @Joel Cruz there are no disadvantages to FHA, but if you don't start out using a conventional 5% loan on a 3 or 4 unit you really can't use one unless you put down the full 25% down payment. If you are under water or at value on an FHA property then you may have issues refinancing out of the loan. I am not a lender, and I refer all those types of questions to my main lender who knows every way in the book to move in and out of mortgage debt!

    why do you say you cannot buy FHA and then use 5% conventional? once you move out of your FHA property, I see no reason why your next multi family property cannot be an owner occupied property with conventional 5% down mortgage

    0Reply
  • Rodney Sums
    Laveen, AZ · Member since 2016 · 584 posts · 528 votes
    8y

    @Andrew B.

    Unless there's a friendly lender or local program out there that anyone has yet to reveal (please do if you know of one), that 5% down program will only work for people who don't already own property. I agree with everything else you said though.

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    8y

    @Rodney Sums bingo. That is exactly why I always recommend house hackers start off by using the 5% down conventional. It leaves your FHA loan in your tool belt for your second property.

    0Reply
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