House Hacking Advice

4 Replies

Hi,

I'm looking to purchase a multi-unit town home with and FHA loan. I'm also a new investor. I been marketing for wholesale deals but it's slow motion out in Baltimore and high competitive.

I was never interested in whole but it seems to be a necessity starting out with no capital for what I really want to do (rehabbing, commercial, multifamily). But I do need to move and figure a purchase of a multi family 2 unit home, I live in one unit and have a tenant would be a great start to a real estate portfolio.

The question I have is I've networked with am agent and I know he'll ask for proof of funds. Should I actually start the process of securing the FHA loan which should give me the proof of funds. I'm not exactly how to start this process since I am a newbie investor.

Hey Ellis,

I'm basically in the same boat as you. No property yet, but I'm working with a real estate group here in the Chicagoland area and have been pre-qualified from a lender I met through the real estate group. I know how exciting and confusing all of this is, haha. I see from your profile that you have access to the MLS but you might want to check out your local BP forum to find contacts for investors, realtors, or lenders in your area. Depending on the realtor, they might not need a proof of funds prior to starting up with you. Mine did not, but it depends. As long as you can get your required paperwork in order with the lender then I think you should have no problems. I met with the lender after sending him w-2's tax returns, etc. and he explained a great deal about what options I had in terms of financing. If this is your first purchase, you should qualify for the 5% conventional. It has a little more required up front but less PMI than the FHA and it only applies to your first home purchase. Hope I'm not saying things you already know! Just passing on info from one newbie to another. Good luck and congrats on making the important first steps toward your goals.

Jon 

Yes, the first step is to connect to a local lender - preferably one who does up front underwriting - and find out how much you will qualify for and how much down payment you will need.  That will tell you what you can shop for. You are going to have to have a pre-approval letter to submit an offer, and you want to narrow your search for what you can afford.

This is my favorite way to get started in investing! Remember, your FHA loan can be used for 1-4 units. Ask the lender if you were to purchase something that already had established tenants in it, could you use the existing leases as income to qualify for the loan. Off to keep the existing management company in place if underwriting wants to see experience. How could would it be to find a 4 plex that literally pays you to live there!

@Jon, thank you for the advice and congratulations on your imminent home.

@Patti Robertson  

Great advice. I didn't think about it that way as to use the lease income to qualify for the loan. That's what I love about real estate investing, it allows for creativity. 

Do you mean the lease qualifying as income being the down payment or the lease income adding to my existing income to qualify for a larger loan.

Thanks for the great advice.

@Ellis Thurman Jr - You won’t be able to use the rents for down payment.   Lenders generally require you have consistent income for two years (same industry).  That is sometimes a hurdle for new landlords.  Generally, the more the units the higher the price.  I meant if leases are in place and the building is being professionally managed, underwriting may be willing to include the rents in your qualification even though you don’t have rental income on your tax returns yet.  (I have had military clients in this scenario who used me to manage to they would qualify.) Normal the price you would be approved for for a single family is not the same as the amount you would be approved for for a 4 plex, although they will probably hesitate giving you a number for a 4 plex without knowing more details about the property you are looking at.  Your first step is to find a good local lender. They will guide you.