Using FHA to buy multi family

7 Replies

Hi All! I am in the process of refinancing my current home from an FHA loan to a conventional loan. I will be closing this week! My property appraised well and I now have over 20% equity (no PMI! Woohoo!!) Now! My next step to purchase an owner occupied multi family residence (4 plex) using FHA. I don't have 20-25% to put down so I need FHA. I plan to rent out my current home and move into the 4 plex. I'm hoping to get some help in this area: * is there a waiting period from the time I refinance to the time I can purchase? * do I need to move out of my home and rent it for a period of time before I can purchase with FHA? * what are other regulations involved with FHA to purchase a second home that is a multi unit? Thanks so much in advance for your expertise! Jo

I don't think that there is a waiting period from when you refinance to when you can apply for the fha on the multi. The only thing to be aware of is that your Debt-to-income ratio must be able to cover both your current home and the new multi at the same time. You will not be able to use the rental income on your current home to get your DTI ratio down until you have two years of history on your tax returns.

I actually plan to do the same thing that you are doing except I am probably going to need to sell my current single in order to get my DTI ratio down enough to qualify for a 4 plex.

Welcome to BP, Jo! 

My question is, you're refinancing you home, are you doing that loan as an owner occupied, because if you are, you won't be moving anywhere for a year. 

As to FHA, 97% is owner occupied, not second homes and in reality, buying a 4-plex is tough because of the appraisal requirements for FHA, like properties sold within 6 months, finding 3 sales of multi unit single family dwellings, of more accurately, single family attached dwellings will be hard to do. BTW, "multi-family" is 5 or more units.

Just call me the dream popper I guess. Sorry, :)

@Jo Ballagh  As other have said:
* There is no wait between refi of current FHA loan to a conventional, and getting a new FHA loan. In fact they can be done at the same closing.
* You will have to have enough income to support both the loan entirely. You don't have enough equity in the current (that you will convert to rental) and you don't have landlord experience, so will not be able to use and of the rental income to qualify you.
* Know the area you are looking to buy a 2-4 unit property. Make sure you are not the only one. Like all purchases, the property needs to be appraised for the loan.

It is doable, just need to put in work. Will be happy to help you walk/think through it. PM me.

Good luck.
Upen Patel 

All, 

I so appreciate your replies. I saw them once but couldn't find them again on the mobile app. You were all correct that I can jump into FHA and i appreciate the non-negativity! I'm currently under contract (after scraping by with a barely acceptable debt:income ratio) on a really great place in my town. Just waiting for the inspection, rental analysis and appraisal! Hoping to close in October/November!

Originally posted by @Jo Ballagh :

All, 

I so appreciate your replies. I saw them once but couldn't find them again on the mobile app. You were all correct that I can jump into FHA and i appreciate the non-negativity! I'm currently under contract (after scraping by with a barely acceptable debt:income ratio) on a really great place in my town. Just waiting for the inspection, rental analysis and appraisal! Hoping to close in October/November!

Congrats! My plan is to do exactly the same thing, I just hit about 20% equity on my primary residence and cannot wait to refi out of my FHA loan. Did you have to settle on a duplex instead of a 4plex? Care to share any of the numbers of what you expect from cashflow, etc? Thanks!

Originally posted by @Steven S.:
Originally posted by @Jo Ballagh:

All, 

I so appreciate your replies. I saw them once but couldn't find them again on the mobile app. You were all correct that I can jump into FHA and i appreciate the non-negativity! I'm currently under contract (after scraping by with a barely acceptable debt:income ratio) on a really great place in my town. Just waiting for the inspection, rental analysis and appraisal! Hoping to close in October/November!

Congrats! My plan is to do exactly the same thing, I just hit about 20% equity on my primary residence and cannot wait to refi out of my FHA loan. Did you have to settle on a duplex instead of a 4plex? Care to share any of the numbers of what you expect from cashflow, etc? Thanks!

Steven, 

Thanks! I'm pretty lucky in that I have a hard working lender pushing my numbers pretty tight. A duplex/triplex would have been a walk in the park but I was set on a 4 plex (because I don't want to pay "rent") and it's pretty close. Not using my current house's rental income is tough. At this point, I'm hoping it doesn't fall through right at the end because of my DTI.

I live in Alaska so our rental market is pretty solid (as of this post). NICE multi family homes being sold are pretty scarce and the ones that are on the market are in the "up and coming" (ie: we're trying to clean up our drug/homeless problem) neighborhoods. I found a great place in a decent neighborhood that hasn't been renovated since it was built in the 80s and will be paying near full price for it to keep other offers at bay. 

I'm looking at a purchase price of $519k (pending inspection and appraisal). There's a 3br unit, 2x2br, and one 1br. My mortgage is looking like it'll be about $3400 (because I'm only putting down 3.5%), total current rents (without owner occupancy) come in at $4300/mo and I can cashflow $300 from my current home. 

If I didn't have so much stuff, I'd cram into the 1 br, and enjoy about $600 total cash flow from both properties...and I still may consider that. OR move into the 1br, renovate, rent it for market value (the tenant has been there over 10 years and is a hoarder-the unit is not up to date) and then jump into the 3br next spring. But because I've been living with a roommate in my 990sqft ZZL, I'm pretty set on living in the 3br unit and enjoying the fruits of my labor :-P haha.

What is your market like in Iowa, Steve? 

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