Transitioning From My First House Hack To My Second House Hack
Investor · Jersey City · Member since 2020 · 132 posts · 21 votes
Hello All,
I am considering purchasing a home (home A) with a FHA loan to avail of all the benefits that a FHA loan has to offer and then move on to another property (home B) and do the same again with the FHA loan.
Home A would then be kept as a rental investment property but be financed still under the FHA loan.
We would purchase house B after we had been living in house A for at least a year.
We would still be living in home A when trying to buy home B.
We would also still be living in house A after we have purchased house B and were renovating house B.
In order to qualify for the FHA in Home B, home B would have to become my primary residence (I believe).
My question:
Is it permissible for my family and I to live in house A right up until we move into house B?
We would essentially be claiming that house B is our primary residence although we would actually be living in house A for a while before moving to house B.
With all the above said.
Can I do the strategy above and get FHA loans for both house A and house B?
#1 thing is to talk to a lender/loan officer. Or multiple loan officers, and pick who you work best with, or keep two of them in case they work with different underwriters and offer different packages.
#2 it's possible you are better off with a 5% down payment conventional loan and not an FHA loan, just a possibility to consider.
#3 There are typically requirements that they will give you, for example you have something like 6 weeks to move in to satisfy the owner occupant rule. If I am right about the 6 weeks, and you move in after 6 weeks and 3 days, probably no one will notice or care. But, if you wait three months, that's clearly different.
My difficulty right now in obtaining house hack #2 is juggling the DTI from my first one. It doesn't cash flow with me in it, I spend about $400/month towards PITI still, it's an expensive area that's hard to cash flow. I will have to apply leases towards the debt payment, and simultaneously move out in order to qualify for the new one.
@Patrick Q. Typically you can not have more than one FHA loan at a time. So you would have to either pay off the first one or more likely refinance out of that loan.
Thank you kindly for your advice.
That's a tricky one with house hack#2.
Maybe speak to a small regional bank with flexible rules and ask them how others have addressed this kind of issue in the past?
Thank you.
I have heard that if you purchase a smaller, cheaper, or "worse" house that some lenders might not believe you when you say you will live there. But I am learning that especially in HCOL areas, going "small" may ensure repeatability and being able to move into a second, third, fourth...etc house hack.
So, moving from a $725k house hack into a $600k house hack might not be viewed favorably by lenders, even if it allows me greater flexibility to at least break even with cash flow and expand.
Can anyone corroborate this? Confirm or deny, or provide any solutions?
I may be able to continue working remotely, so then it would be possible for me to move to a different area and house hack there. But, then they wouldn't be very close to each other, which is convenient for management.
The great thing about HCOL areas is that you end up with large loans, so when interest rates drop, you can truly capitalize upon refinancing. I have improved my net income on my house hack by more than $600/month since I purchased it in mid-2017, and that's even after taxes and insurance have both increased! Truly does show how powerful "time in the market" can be. Rent only goes up.
Of course, the risk is that if low interest rates do rise, who will want to pay $600k for a house(or $1M, or $2M, or whatever in places like the Bay Area) at 5.5% or 6% interest? Prices would collapse!
I have heard that if you purchase a smaller, cheaper, or "worse" house that some lenders might not believe you when you say you will live there. But I am learning that especially in HCOL areas, going "small" may ensure repeatability and being able to move into a second, third, fourth...etc house hack.
So, moving from a $725k house hack into a $600k house hack might not be viewed favorably by lenders, even if it allows me greater flexibility to at least break even with cash flow and expand.
Can anyone corroborate this? Confirm or deny, or provide any solutions?
I may be able to continue working remotely, so then it would be possible for me to move to a different area and house hack there. But, then they wouldn't be very close to each other, which is convenient for management.
The great thing about HCOL areas is that you end up with large loans, so when interest rates drop, you can truly capitalize upon refinancing. I have improved my net income on my house hack by more than $600/month since I purchased it in mid-2017, and that's even after taxes and insurance have both increased! Truly does show how powerful "time in the market" can be. Rent only goes up.
Of course, the risk is that if low interest rates do rise, who will want to pay $600k for a house(or $1M, or $2M, or whatever in places like the Bay Area) at 5.5% or 6% interest? Prices would collapse!
Colin. I cannot corroborate on whether a lender will look at you moving to a less expensive property in a negative way. I will say that if you are still working remotely, its worth your time to look outside of Boulder proper for other investments. My strategy is buy and hold, a mix of appreciation with cash flow. I take a hit on cash flow in return for speculation on appreciation over time. It's an expensive market to play the investment game but I firmly believe there's a niche for all of us in this area. I'm curious what type of lender you're using? I've had the best rates and response from local credit unions. Can you open a HELOC or refinance your current mortgage? If you have student loans, are they on an income-based repayment plan? For those of us out there with high student loan debt burdens (so long as theyr'e Federal loans), changing to an IBR plan lowers your monthly obligation to that debt and really helps your debt to income ratio on paper. (You can still pay more than the minimum IBR payment without penalty)