First time House Hacking - FHA LOAN DUPLEX

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First time House Hacking - FHA LOAN DUPLEX

Dylan Smith
Member since 2021 · 12 posts · 14 votes

Hey BiggerPockets, question!

Do you recommend purchasing a multi family property with an FHA loan. To keep it short, I'll be living with my girlfriend - rent is $1000/month; $500 each.

The goal would be to house hack" a duplex with a FHA LOAN (3.5-5% down). Rehab side A - Rent side B . Once rehab is completed - move tenant to side A - Rehab side B & after 6/8/12 months rent side B. Rinse and repeat. Possibly do a triplex, then quadplex. My mortgage loan officer says he only requires 5% down for 2-4 units

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Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y

@Dylan Smith this is one of the biggest investment strategies that BiggerPockets and investors alike advocate to newbies. However, easier said then done. With the current nature of today's market, most 2-4 unit properties (Atlanta, GA market specifically) are bought by all cash buyers that are willing to go way over asking. FHA insured loans have regulated lending guidelines, meaning the property has to meet certain requirements before underwriting is applicable. Usaully FHA lending terms are more favorable when the property is move in ready. Also, FHA requires the owner to occupy the property for the first year. Therefore, if one of the units is already tenant occupied and the other is in the process of rehab, then you're technically committing mortgage fraud. With that said, investors use this strategy all the time. Hope this helps!

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  • Dylan Smith
    OP
    Member since 2021 · 12 posts · 14 votes
    4y

    @Shawn Mcenteer Good to know. Is there a way to negotiate PMI when you have good credit but the lender still tries to charge it?

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  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    4y

    @Dylan Smith good question. I do not know but my guess is no being that PMI does not go to the lender so its not like they are collecting extra money by having a loan with PMI.

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  • Ralph DiBugnara
    Banker · New York, NY · Member since 2021 · 91 posts · 19 votes
    4y

    @Dylan Smith, this is straight from the FHA website: https://www.fha.com/fha_articl...

    "FHA loan rules DO allow the owner/occupier to rent out the unused living spaces in the home to others, and in certain circumstances you may even be allowed to use the income potentially generated from such rentals to qualify for the mortgage.

    But there’s one thing you should know about these rules-they apply only to those who are renting for 30 days or more. As in, a typical rental agreement like any apartment or rental home."

    There are other short-term rental sites that target renters who stay for longer than 30 days, such as furnished finder. In the future, you can refinance the property out of FHA so that you can rent the units under airbnb/vrbo and not break the rules.

    The first thing to do, however, is to speak to a mortgage professional to make sure your purchases fit your long-term goals.

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  • Ralph DiBugnara
    Banker · New York, NY · Member since 2021 · 91 posts · 19 votes
    4y

    @Austin Haynes, Some products can go as low as 5% down. It would all depend on your situation, loan type, and budget. 

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    Definitely an awesome idea. Try to buy 3-4 units if possible for better for scale!

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  • Parker Brooks
    Contractor · OH · Member since 2021 · 25 posts · 14 votes
    4y

    @Dylan Smith

    Dylan, 203k the property and blow out all the renovations at once and bump rent up to market price. You will be able to use that increased rent income as credit on your next property and it will be stabilized/seasoned at a higher rent for longer than piecing renovations 1 unit at a time. Also while you may be capable of saving the capital to do the live in flip method what if you become undisciplined and spend it or an emergency happens? What if we go back to lock down from pandemic and materials sky rocket again and now ur budget for renovations isnt enough? Let the bank pay for it big dog go 203k.

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  • John Malden
    Member since 2023 · 1 post · 0 votes
    3y

    My lenders said that I can only purchase a 3 unit apt building under a FHA loan. Where can I find the FHA guidelines so I can know for myself what I can purchase or not?

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