Hey Juan. If you do not have 20% this will be your best avenue.
If you aren't over the income limits I'd strongly suggest looking at the Freddie Mac Home Possible loan over the FHA. That's what I used to buy my three unit house hack, had never heard of it until the originator suggested it and glad I went that way. as low as 5% down on 2-4 unit, lower mortgage insurance premium and no upfront insurance payment at closing, and it's a conventional loan so stronger offer and less red tape than the FHA. And, the Home Possible does have a first time buyer requirement where the FHA doesn't so use it first if you can. Using a local lender may be a smoother process than a national name like Bank of America.
@Juan Alvarez have to double check with a lender, the official language is something like "may not have ownership interest in other residential property" rather than "first time buyer." But there are a few exemptions to the rule and I think inheritance may be one of them.
@Juan Alvarez there is a rehabilitation program that FHA offers, called 203k Loan. Basically, it's the purchase price plus rehab costs, and whatever that amount is, you can still put down 3.5% . for example: Purchase price is 150,000, rehab costs are 35,000 which equals 185,000. 3.5% of 185,000 = 6475.00 down. Hope that helps.
@Juan Alvarez my son bought a 4 plex in Beaverton Or for $415K four years ago using a FHA loan with 3.5% down! He got a great deal and then a couple years ago bought a second 4 plex the same way. He got lucky as FHA was NOT designed to build RE investment portfolio. But that's how he started! Now, back in April we closed on a 8 plex 50/50 getting a commercial loan with 20% percent down with MAPS CU. It can be done ! Best of luck
@Juan Alvarez Think BIG and follow your passions and dreams! If I was younger, I would start out harder and faster! Again, my son @Jason Powell got that first 4 plex right out of college with a letter to start of job, along with his wife's internship at Intel. They had limited credit, but enough to make that first bold move. It has panned out, and at 27 years old, they are flying in the RE world! They are way beyond where I was at 27 years old! Go get it man, but buy the right deals and don't chase the crazy MLS stupid offers! Find off market, solid deals!
@Juan Alvarez I don't think they have a rehab loan like that of the 203k, someone can correct me if I'm wrong.
Do your due diligence and if the numbers work, go for it.
Almost every loan officer says the offer rehab loans, but 99% of them havent done one except maybe once or twice in their career. They are tricky loans, lots of got yas, and more expensive from an interest rate perspective. Not saying they are a waste of time, but they arent a walk in the park.
For rehab loans FHA has 203k renovation, and there is the Fannie mae homestyle. 203k is broken down into 203k limited and full 203k. Limited is a max of 35k in repairs, nothing structural is allowed to be done (you can replace the roof put in a new kitchen, but you cant repair a foundation or cut a hole for a new window for example). Full 203k is pretty much wide open, as is the homestyle, BUT they both require a licensed "consultant" that creates a feasability report, handles inspections and draws, etc. Sort of like a babysitter for you and the GC to make sure you dont screw up with the banks money. They charge up to a few thousand dollars for their babysitting
If you are looking to purchase a home that needs rehab I would sit down with a mortgage broker and discuss your options and tell them you want more info on the FHA 203k loan and the Fannie Mae Homestyle renovation loan.
I have had several clients here in Connecticut use both loans with success and they typically chose one or the other based on their personal situation.
Being a renovation lending expert I can tell you the process is not that complicated. The complications come with working with a lender who doesn't truly know how to process these types of loans. The FHA 203K would be your best option here over the HomeStyle because with a multi-family property conventional loans require more money down than FHA. For example a 2 family property would require 15% down going conventional where as FHA would only require 3.5% down. The calculation is based off of the total acquisition price of the home (purchase price + renovation budget) not just the purchase price.
As for your credit, FHA doesn't have a guideline that requires you to have established credit. In fact you can have no trade-lines at all and still qualify. You mentioned that you were buying a duplex so that rental income from the 2nd unit can also be used to help you qualify from an income perspective. I hope this helps and if you have any other questions please let me know.
Best of luck!!