Buying a multifamily with a FHA Loan

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Buying a multifamily with a FHA Loan

Melissa Harris
Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes

I am in the middle of selling my single family home and will be able to pay off the remaining of my debt and be debt free!!! I will have about $60,000 left over once I pay off my debt to put towards my next primary property. My plan is to buy a 3-4 unit property with an FHA loan and only put down 3.5% and live in one of the units and rent out the others for the next 2 years and then refi into a conventional loan and pull cash out to buy my next multifamily etc.

The question I have is who has done then recently in Colorado? I am finding it really hard to find a property that fits the Loan Limits with a FHA loan. I am looking to buy close to the Fort Collins area. I am a licensed Realtor, so I am planning on NOT taking a commission and have them lower the purchase price but what other strategies have you guys used in order to buy in this hot Colorado market with a FHA loan and only putting down 3.5%? Any advice would be great! Thank you for your time and looking forward to some responses :)

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James Orr
Real Estate Agent · Fort Collins, CO · Member since 2010 · 350 posts · 222 votes
8y

Prices for duplexes, triplexes and fourplexes in Fort Collins has run up quite a bit in the last few years and there are not a lot of them that hit the market (so you may need to be aggressive to get them when they do). I have had some clients buy multi-family to live in with FHA and VA loans. I have more clients that would if we found the right one. Finding the right one has been the challenge for most of my folks.

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  • Ian I LeinwandPro Member
    Property Manager · Fort Collins, CO · Member since 2018 · 89 posts · 42 votes
    8y

    Sounds like FHA is not the right fit for multi family purchase. I also dont see may multi family properties for sale in Fort Collins. I have used private hard money loans to make cash purchases of rental properties and then refinance to conventional after 6 months to a year.

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  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @Ian I Leinwand what was the cost of getting hard money loan? For example if I am looking to buy a 3 unit for $1,000,000 what would it cost me a month to pay on the hard money? Does that make sense?

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  • Ian I LeinwandPro Member
    Property Manager · Fort Collins, CO · Member since 2018 · 89 posts · 42 votes
    8y

    Hard money rates average 10 to 14% and 1 to 4 points. Depending on duration and risk to lender. Good for short term bridge to traditional financing. 

    Syndicating your deal maybe a better option. Im not sure you will find any lender to give a loan on an investment property for less than prime plus 1% and 20 to 25% down. 

    As an agent do you have any relationships with local lenders who can advise you on options. 

    1Reply
  • Account Closed
    New to Real Estate · Teaneck, NJ · Member since 2018 · 167 posts · 60 votes
    8y

    @Melissa Harris Hard Money loans are interest only loans and then one balloon payment at the end so it depends on what rate your receive for example: a Loan for 125,000 for 12 months at a 11% rate is 1145.83 a month and at the end of the 12 months you pay the 125,000.00 back.  That's not including the upfront cost for example Appraisal fee, Legal fees. Some Hard Money lender charge points others don't. 

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  • Brian Armstrong
    Investor · Fort Collins, CO · Member since 2015 · 56 posts · 30 votes
    8y

    There are also local banks who might be interested in a "short" loan of 6-18 months. I'd be happy to recommend a small bank I've worked with to see if they meet your needs - if you're interested, please DM me. First Bank is a portfolio lender that could be another option but they'll likely place you in an ARM (which isn't bad if you're planning on refinancing after a year or two anyway).

    Multifamily is tough here in Fort Collins but they are out there - I recently partnered with someone to take down a multi-unit building. I like your house hacking idea too! That's a great way to get into the game quicker!

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  • Ed Burk
    Investor · Lombard, IL · Member since 2018 · 57 posts · 10 votes
    8y

    @Ian I Leinwand

    From a Private Money Portfolio lending aspect you would most likely have (2) options on a (2-4 unit).

    1) Rehab/Fix and flip type loan if rehab/repairs are needed >$5k- Depending on experience and Credit, acquisition LTV would be between 85%-95%, estimated Interest Only rate 7.09%--9.99% w/ 1 point for 9 months. 

    2) Rental Loan (2-4 unit), Depending on Credit, Max 75% LTV (80-85% SFR), Estimated 5/1 ARM rate 7.125% Full AM. or 7.375% Interest Only w/1 point.

    *Assumption of 750 FICO for estimates/$1M purchase price*

    Hope this provides some useful information

    Ed B.

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  • James Orr
    Real Estate Agent · Fort Collins, CO · Member since 2010 · 350 posts · 222 votes
    8y

    Prices for duplexes, triplexes and fourplexes in Fort Collins has run up quite a bit in the last few years and there are not a lot of them that hit the market (so you may need to be aggressive to get them when they do). I have had some clients buy multi-family to live in with FHA and VA loans. I have more clients that would if we found the right one. Finding the right one has been the challenge for most of my folks.

    3Reply
  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @Ian I Leinwand Wow hard money sounds expensive! Not sure if I want to go that route, I am looking into buying new build 3-4 unit complexes, I am not sure if using hard money on those kind of deals would work since none on them will need work. Thoughts? 

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  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    Has anyone heard of doing the FHA 203k loan? What are the pro's and con's on doing such a thing if the units needed work?

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  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @Ed Burk thank you for your information, how does a FHA 203k loan work? Would that be a good option for what I want to do and if I find a complex that does require some upgrades?

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  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @Brian Armstrong Yeah I would love the recommendation if you can provide it :) Would love to learn more about that "short" loan. 

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  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @James Orr I would love to chat with you more on Wednesday, I'll be coming to the meet up tomorrow night about the deal analysis 301: Multi-family :) 

    2Reply
  • Steve ShaferBusiness Member
    Real Estate Professional · Fort Collins, CO · Member since 2014 · 27 posts · 20 votes
    8y

    @Melissa Harris I'd stick with your plan to use an FHA loan for a multi-family—this is how I did my first deal and it's one of the better decisions I've ever made. FHA is pretty good about keeping their loan limitations in line with local market realities, with $774,050 being the current FHA loan limit on a 4-plex (see below, chart straight from HUD). That is definitely something you can find even in this competitive market, not to mention a duplex under the HUD limit of $515,200. I just bought a duplex at the beginning of this year for $385,000 that needed a bunch of work. Be persistent and creative with your search and I know you can find what you're looking for—feel free to message me if you are stuck and need some ideas.

    2Reply
  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @Steve Shafer thank you so much! I have seen the loan limits chart and look at it all the time lol. Thank you for your feedback, it's nice to hear that you were still able to find a property within the loan limits in this crazy market! I will just have to be patience and wait for the right one :) I will definitely reached back out to you if I have other questions. I appreciate it. 

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  • Seth WilcockBusiness Member
    Lender · Nashville, IN · Member since 2016 · 138 posts · 84 votes
    8y

    Hi @Melissa Harris - First and foremost, CONGRATULATIONS on paying off your debt soon!  My wife and I did that a little over 3 years ago, and there is NO better feeling in the world.  Amazing accomplishment!

    @Steve Shafer is 100% correct on the FHA county loan limits being higher for multi-family homes. Spot on!

    Another loan option to consider, would be doing Freddie Mac's HomePossible loan, which requires a 5% down payment and it's conventional financing as opposed to FHA. Additionally, the conventional conforming loan limit for Larimer county is $871,450, which is a little higher than the FHA loan limit. With HomePossible and FHA, you can use proposed net rental income from the smallest 3 units to help you qualify, as long as you will occupy one of the units as a primary residence. The HomePossible loan will likely be a better loan option for you than FHA if you have good credit, and it will save you 1.75% of the loan amount in FHA upfront mortgage insurance premium ($600,000 loan x 1.750% = $10,500 in FHA UFMIP). The HomePossible loan is sometimes income restricted, depending on where the property is located. If you'll have a higher credit score after your debt is paid down, HomePossible will likely yield a better combination of rate + monthly mortgage insurance, and the appraisal process will likely be a lot easier to get through as opposed to FHA.

    Send me a message if you have additional questions on this.

    Resolute Lending Powered by Independent Mortgage Brokers LLC
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  • Lamon Lashley Jr
    Rental Property Investor · Villa Park, IL · Member since 2018 · 4 posts · 4 votes
    8y

    Hey @Seth Wilcock would it be possible to receive a rehab loan with the freddie mac homepossible loan? 

    0Reply
  • Melissa Harris
    OP
    Real Estate Agent · Windsor, CO · Member since 2016 · 133 posts · 27 votes
    8y

    @Seth Wilcox that is really good to know! I haven't heard of that program before and definitely seems like a better option. Right now I have a 720 credit score, so I'm sure once I'm able to pay off my debt and have my mortgage removed from my credit it will certainly be alot higher. I will certainly connect with you once my house sells after the first of July :) Thanks for the advice! 

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  • Seth WilcockBusiness Member
    Lender · Nashville, IN · Member since 2016 · 138 posts · 84 votes
    8y

    Hi @Lamon Lashley Jr - I don't believe there is a rehab element with the HomePossible loan.  That being said, there is a 5% down Fannie Mae HomeStyle renovation loan for primary residences.  You can do 10% down renovation on second homes, and 20% down renovation on investment properties under this loan program.

    Resolute Lending Powered by Independent Mortgage Brokers LLC
    WebsiteView Page
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