Using an FHA Loan in Multifamilies in Chicago

9 Replies

Hi everyone,

I have been searching for a 3-4 unit multifamily for a few months now, but because I have been searching using FHA guidelines from a lender I was referred to, I have not been able to find anything.

I feel that my lender's guidelines may be strict, but I wanted to see if anyone has closed on a multifamily in the Chicago area using an FHA loan in the last year or so. I was under the impression that the FHA guidelines are universal, but I haven't even found a place that would qualify yet for me to even look at. I wanted a second opinion from the community. Thanks for the help and I look forward to hearing back!

Originally posted by @Trevor Fritz :

Hi everyone,

I have been searching for a 3-4 unit multifamily for a few months now, but because I have been searching using FHA guidelines from a lender I was referred to, I have not been able to find anything.

I feel that my lender's guidelines may be strict, but I wanted to see if anyone has closed on a multifamily in the Chicago area using an FHA loan in the last year or so. I was under the impression that the FHA guidelines are universal, but I haven't even found a place that would qualify yet for me to even look at. I wanted a second opinion from the community. Thanks for the help and I look forward to hearing back!

Where are you looking? The loan limits for FHA are the same no matter what lender you use. In cook they are:

2 units $465k

3 units $565k

4 units $703k

@Brie Schmidt Thank you. I am looking in areas just outside of Wicker and Logan Square as well as Avondale, Lincoln Square, Albany and Irving Park. I was told that the rents must already be in place and cover the PITI, which is difficult to find properties that meet this criteria in this price range and since I would like to improve the quality of the units as well once bought. Is this simply extremely difficult to find and few and far between?

Thanks!

Guidelines are just that -- a minimum standard...

For example - 

FHA guidelines allow a manual underwrite with scores down to 580 --Wells Fargo and BofA just raised their minimum scores up to 640 for FHA. So while the Feds have their guidelines lenders can and DO add their overlays....after all they are making the loan.

So find an aggressive broker who will deal with the smaller FHA wholesale lenders who are less picky and will do a manual underwrites with NO overlays. Then you can a assume you will get what FHA says they will do.....

Golden Rule ---  They have the gold so they make the rules....

@Trevor Fritz

@Brie Schmidt

Brie great post on the limits for FHA! Trevor she is a well known agent here on B.P. and I am sure would be glad to guide you as well. Trevor, you have brought up a very good case that many investors or loan officers are not aware of or confused by. Some lenders have further overlays and this may be the case with you. I am not sure, if this is the case. 3-4 unit properties do require the potential rental income as determined by market rents or current rents (lesser of the the two) to = PITI.

The difference that is taken into consideration is the projected rental income for all of the units, including the one that you would be residing in. So the vacant units and the unit you would be residing in, would be determined by the appraiser. Maybe you are looking at units that need too much work and the rental income is too low, or Maybe all rents are not being considered? Please note below:

Three (3)- and Four (4)-Unit Property The maximum mortgage amount for the three (3) - and four (4)-unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status. 

Reserves For three (3) - and four (4)-unit properties, the borrower must have personal reserves equivalent to three (3) months' PITI after closing on a purchase transaction. Reserves cannot be derived from a gift.

@Trevor Fritz - It is a little harder with FHA but not impossible... about 70% of my clients use FHA loans and I have never not found somebody a place.... it could be the time of year... but then again I just had 3 clients go under contract in the last 2 weeks and 2 have FHA loans

@Trevor Fritz

I purchased a three flat in April with an FHA loan. My suggestion is to get a really good lender who not only knows how to work with but is willing to work with FHA loans. From what I understand there are a lot of lenders that don't fully understand and aren't comfortable with the FHA process. I still don't understand everything my lender did for me but it all worked out well. I would also get an agent that is familiar with them as well. Mine was amazing but the sellers agent pushed back a little in the beginning because he wasn't familiar with the loan. 

Don't let the frustration get to you, just keep working on it. I'm almost a year into my first purchase and it was a ton of work but I'm so glad I did it.

Good Luck!!!!

@Tim Coppola - 

My year goal is to find and purchase a small multi unit! So I'm reading up on FHA loans and plan on contacting a few lenders to begin a conversation. Would you be willing to recommend the lender you used who helped with your property purchase?

Many Thanks!

Tim Coppola