0% Down, Owner Occupied...Yes or No?

Question

Will be moving soon to a (annoyingly) HOCL area for career and to be closer to family.

Based on career/projected income, was offered a 0% down, no PMI, owner-occupied option (Rate is ~4.8%) from a bank we have a relationship with. Extends well into the high 6 figure range.

No intention of maxing this out, still focused on investment portfolio growth.

We are looking at living “small” relative to the area, and our income.  Budgeting 10%-12% of our gross household income towards mortgage (or rent...). We will be settling in this area long-term, potentially forever.

Our first world problem gives us the following options:

1. Rent. Invest elsewhere where the numbers make sense. Aim to buy “forever home” later on down the road, maybe at next correction.

2. Buy a turnkey condo/home now with the 0% down program to take advantage of owner occupied financing. Convert to rental or sell. Advantage: It’s just barely over what we’d pay for a rental. Disadvantage: If it becomes a rental it will not be cash-flowing, offsetting the no down payment. (Glass half full: I can and would take the down payment and invest elsewhere...)

3. Rent (short term). Buy something more beat up (read:older) with owner-occupied financing, rehab and force appreciation. (Easier said than done, but willing to go at it.)

Question boils down to:

Should we continue to take advantage of no/low-down owner occupied program everytime we move?

Or is cash flow so important that it negates any advantage of low-down programs in this type of hot market where house values are smoking rental market? They don’t seem to be catching up...

Aaron K. · Answer

@Michael Lee my understanding is that this guy is way past house hacking, he wants to know if it is better to take advantage of favorable terms now or wait to purchase a home.  The question I would ask is when would your investments be at a satisfactory level for you to justify the purchase of your primary residence.  If you don't have a firm answer you may never buy a primary residence because the math will always tell you to invest more.  However, if you want to buy a home at some point you should probably set a concrete number down for when you feel comfortable doing so.

Michael Lee · Answer

Hello and welcome to this site Aaron!  To me, this question has many details for my answer.  My first comment is that you should live within your means, which means to save as much money as you can live with and to make investments when you can.  So my answer is to not pay a bunch of rent just because the deal may sound good.  Look for a place that can easily be turned into a rental and probably can add value to it with your own labor.

You might could even buy an investment home and get what's called a "house hacking" loan with a 3.5% down payment and is an "added value" investment.  If the owner is up to it you could get a "lease option" deal which you rent for a while and then buy the property at a future date that both sides can live with.  Pick a certain percentage of your

Aaron K. · Answer

If it were me it would depend on how well you know the area.  If it is a completely new area it might be better to rent for a while and learn where you would want to live long term.  If you already know the area well and plan to buy either sooner or later it might be a decent idea to take advantage of today's interest rates.

Michael Lee · Answer

Hello again Aaron!  For your info, I might have changed a little since then but I actually had a house built for my wife and I back in 1984 and the mortgage was paid off about 22 years ago.  Thanks for your input. Another thing, I would tend to not pay much attention to anybody's opinion who has not done what you are talking about.

Aaron Hunt · Answer

We have a few decades to retirement, and our income is 3x the median for the area. The median home price in this town is a ridiculous $550k+, and the town over has a median of $850k (which we are avoiding even looking at right now).

We want to continue having the option of early retirement or if life takes an unexpected turn we are still covered. Very fortunate to have time and capital on our side but you never know in life.

I've seen too many people who appear healthy, working their tails off and then they deteriorate way too young and never get to even enjoy "retirement age" (regardless of whether they actually retire or not).

Based on what I've read here (on BP forums) and after speaking to family/friends we decided to grow our investment portfolio further. Afterall, this is why I'm here on BP.

For now we will be renting a fairly nice condo, staying at a monthly housing cost of 12.5% of our gross monthly income. Even this is over 2x what we are currently paying on our mortgage now and feels like a hell of a lot to us.

Aaron Hunt · Answer

Never thought about something like that. Would have to look more into it.

Problem is the area we are looking, there really are no duplexes/triplexes/quads to be found. It's either older garden-rise condos that are now being flipped for way too much, high-rise condos (with extremely high HOAs of $500-1000), beat up SFRs built in the 1980s+ that need a lot of maintenance, overpriced townhomes built in the 1990s/2000s (~$700k+), or the newer construction homes which are 5bed/5bath and at minimum $1.4mil+.

Aaron Hunt · Answer

Yep, you're right, we're somewhat beyond that at this point. Not so much cause we are too good for house-hacking but just because we're at a point where each move has gotten exponentially tougher (Read: We have an infant at home).

I think you hit the big question - what is our concrete number? How big do we want for the long term? I realized my question was super vague to begin with. I've talked to many friends/family and I just dont know what the right answer is - but almost unanimously everyone says two things, "These are historically low interest rates." AND when I discuss the financing part, "That's a pretty serious mortgage payment you are considering strapping yourself into." Obviously, it is all relative to our household income and future plans in terms of investments.

Aaron Hunt · Answer

To answer you, we do already have some investment rentals that are doing fairly well (handed off to PMs now), we had used house-hacking methods to get these going and did fairly well. The more I look into it the more I realize the area we are moving to is just not a BRRRR-able/house-hackable location. It's too high demand, and the potential appreciation is baked in to most of the homes we are looking at - that don't require a near complete gut/reno.

Michael Lee · Answer

Hello again!  I do agree with that sort-of agree with that last question.  I would rent and not have a personal loan on your own house should be that all of your monthly expenses  plus a million dollars are in your savings account.  Not knowing your age might mean my answer is not justified but if you can work another 5 years I think that my answer would work in that case.  Keep any personal expense to a minimum until then and be willing to be able to put some a halt to any cosmetic things like a car and your home.  Thanks again!

Al Williamson · Answer

I would buy a duplex in a nice area and turn the other unit into a corporate housing rental.

The cost of ownership typically catches owners off guard. It costs a lot to keep a place well maintained.

The corporate housing/short-term rental will give you the cash flow you need to defray your personal living cost.

That would be my move!

0% Down, Owner Occupied...Yes or No?

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