Loan Products for Primary Residence

12 Replies

My wife and I are hoping to move to Austin within the next year. Our plan is to househack and move into a 2-4 unit building while renting out the other sides. We currently have a mortgage on a primary home and we have 9 investment properties.

Because of how many mortgages we have, does this disqualify us from low money down payments like USDA or FHA loans? Goal is to put as little money down as possible so we can leverage more and put the equity from our current primary into other assets.

Just hoping to get an idea of what all our options are. Thanks!

Tucker, there are a good amount of low down payment options outside of FHA. Connecting with a great local lender is an important step, but there are definitely options out there. Love your plan - I'm a huge fan of house hacking and have done it myself! Happy to answer any other questions you may have.

@Tucker Cummings I'm not a lender but it sounds like you are at the limit for conforming loans (Fannie Mae and Freddie Mac). If this is the case you can't get a low down payment loan like an FHA loan. What I've had friends do is refinance their conforming loans into a portfolio loan to free up their conforming loans (you only get 10, no exceptions). This is one reason I mostly use commercial or portfolio debt, to keep my conforming loans open for better opportunities and low down payments. @Tim Swierczek is a lender and investor and can provide more a more thorough assessment.

@Jordan Moorhead I think we should be good because some of the loans are in my name only, not my wife and we would be selling our current primary so it would open us up. Would love to connect with @tim swierczek for more lending ideas too

Originally posted by @Jordan Moorhead :

@Tucker Cummings I'm not a lender but it sounds like you are at the limit for conforming loans (Fannie Mae and Freddie Mac). If this is the case you can't get a low down payment loan like an FHA loan. What I've had friends do is refinance their conforming loans into a portfolio loan to free up their conforming loans (you only get 10, no exceptions). This is one reason I mostly use commercial or portfolio debt, to keep my conforming loans open for better opportunities and low down payments. @Tim Swierczek is a lender and investor and can provide more a more thorough assessment.

FYI, not exactly…..

The “10mortgaged properties” rule for Fannie/Freddie is for Any type of mortgages on 10 properties, not just Fannie/Freddie….so portfolio, private, whatever all count toward the 10.

This rule does Not apply to FHA, it doesn’t matter how many mortgaged properties you have as long as you will occupy and don’t already have an fha, you can qualify.

Originally posted by @Jordan Moorhead :

@Tucker Cummings that definitely changes things! You should be able to get an FHA loan to househack then. I'm currently househacking a duplex in East Austin and close next month on one in South Austin assuming everything goes well

 That’s awesome, and really encouraging. We were worried that we would have to sell our house in east Raleigh, transfer equity, and come out of pocket to get a 2-4 unit it Austin. Now it sounds like we can sell, buy a new place for minimum down payment and reinvest the rest into either the market or other real estate. Now we just have to find a lender! 

@Tucker Cummings

If you are selling your primary to purchase a primary MF, then you should be fine. You are limited to 10. As others have mentioned, consider forming an LLC and consolidating a few or only purchase new under your business entity. Under an entity will NOT be reported to your personal credit reports but on the business' credit.

As a note, you will not find any USDA qualifying properties in Travis County!  They must be rural, over 20 acres, and your income must be within AMI limits.  USDA loans are a real pain in the *ss for any broker or lender.

The market for MF in Austin is still very competitive.  I've got a borrower who's been shopping for months now.  He has had appraisal waivers, 5% Ernest Monies, removed all contingencies, etc... and still is getting beat out by cash offers.  

You may want to check out some of the suburbs like Round Rock or the west side.  There seems to be a little less competition in those areas. 

Cheers!

Originally posted by @Nick Belsky :

@Tucker Cummings

If you are selling your primary to purchase a primary MF, then you should be fine. You are limited to 10. As others have mentioned, consider forming an LLC and consolidating a few or only purchase new under your business entity. Under an entity will NOT be reported to your personal credit reports but on the business' credit.

As a note, you will not find any USDA qualifying properties in Travis County!  They must be rural, over 20 acres, and your income must be within AMI limits.  USDA loans are a real pain in the *ss for any broker or lender.

The market for MF in Austin is still very competitive.  I've got a borrower who's been shopping for months now.  He has had appraisal waivers, 5% Ernest Monies, removed all contingencies, etc... and still is getting beat out by cash offers.  

You may want to check out some of the suburbs like Round Rock or the west side.  There seems to be a little less competition in those areas. 

Cheers!

 Yes sir, Round Rock, Buda, Kyle, Georgetown and other areas are where we are really looking. Just when you say Austin, everybody knows what you're talking about opposed to the secondary markets. Thanks for your help!

@Tucker Cummings first of all, welcome to Austin (soon)! While you can use an FHA loan to save on the down payment, it will have two big disadvantages. First, it's already difficult to cash flow here with 25% down, so 5% or less will make it harder to cash flow positive in the near future when you choose to move. Second, your offers will be at a big disadvantage to cash buyers and stronger financed offers when in multiple offer situations, which are extremely common. Just something to consider. There are some options available to you to buy with cash and then finance on the back end if you want details.

@Tucker Cummings   There has been a few pieces of inaccurate information so I want to clear those up.  

1- It is true FHA has no limit on the number of properties you own, they do however have language that you cannot use the program to build a rental portfolio. Since your moving from another area I think this will not be as big of a concern for lenders but it's just something to know.

2- The type or number of loans is not a factor in Conventional's guidelines, it's how many financed properties you have.  There is an exclusion for Apartments with 5 or more units and exceptions for Land and Commercial buildings, along with anything owned by a C-Corp.  That means getting a blanket loan on 3 properties still counts as 3, not 1.  

3- Neglecting to report a loan on your credit application just because it does not show on your credit report is a fraud, it's a federal offense.  I'd be careful with that advice.

4-Lastly, there is NO LIMIT on the number of homes you have financed if the home you are financing is your primary residence, conventional guidelines only limit  Second home or Investment properties to 10 financed properties.

In short, you should be good with either FHA or Conventional loans in your case.


Here's the guideline straight from Fannie Mae https://selling-guide.fanniema...

Limits on the Number of Financed Properties

The following table describes the limits that apply to the number of financed properties a borrower may have.

Subject Property OccupancyTransactionMaximum Number of Financed Properties
Principal residenceTransactions other than HomeReady loansNo limit
Principal residenceHomeReady loansDU and manually underwritten - 2
Second home or Investment propertyAllDU - 10

Exception: High LTV refinance loans are exempt from the multiple financed property policies. See B5-7-01, High LTV Refinance Loan and Borrower Eligibility for additional information on these loans.

The number of financed properties calculation includes:

  • the number of one- to four-unit residential properties where the borrower is personally obligated on the mortgage(s), even if the monthly housing expense is excluded from the borrower's DTI in accordance with B3-6-05, Monthly Debt Obligations
  • the total number of properties financed, not to the number of mortgages on the property or the number of mortgages sold to Fannie Mae (a multiple unit property counts as one property, such as a two-unit);
  • the borrower’s principal residence if it is financed; and
  • the cumulative total for all borrowers (though jointly financed properties are only counted once). For HomeReady loans, financed properties owned by a non-occupant co-borrower that are owned separately from the borrower are excluded from the number of financed properties calculation.

The following property types are not subject to these limitations, even if the borrower is personally obligated on a mortgage on the property:

  • commercial real estate,
  • multifamily property consisting of more than four units,
  • ownership in a timeshare,
  • ownership of a vacant lot (residential or commercial), or
  • ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home).

Examples — Counting Financed Properties

  • A HomeReady borrower is purchasing a principal residence and is obligated on a mortgage securing an investment property. A non-occupant co-borrower is solely obligated on mortgages securing three investment properties. In this instance, the transaction is eligible for HomeReady, as the occupant borrower will have two financed properties. The non-occupant co-borrower’s financed properties are not included in the property count.
  • The borrower is personally obligated on mortgages securing two investment properties and the co-borrower is personally obligated on mortgages securing three other investment properties, and they are jointly obligated on their principal residence mortgage. The borrower is refinancing the mortgage on one of the two investment properties. Thus, the borrowers have six financed properties.
  • The borrower and co-borrower are purchasing an investment property and they are already jointly obligated on the mortgages securing five other investment properties. In addition, they each own their own principal residence and are personally obligated on the mortgages. The new property being purchased is considered the borrowers' eighth financed property.
  • The borrower is purchasing a second home and is personally obligated on his or her principal residence mortgage. Additionally, the borrower owns four two-unit investment properties that are financed in the name of a limited liability company (LLC) of which he or she has a 50% ownership. Because the borrower is not personally obligated on the mortgages securing the investment properties, they are not included in the property count and the result is only two financed properties.
  • The borrower is purchasing and financing two investment properties simultaneously. The borrower does not have a mortgage lien against his or her principal residence but does have a financed second home and is personally obligated on the mortgage, two existing financed investment properties and is personally obligated on both mortgages, and a financed building lot. In this instance, the borrower will have five financed properties because the financed building lot is not included in the property count.