FHA Loan House Hack in Expensive Area?

Question

Hello all, I live in Bergen County New Jersey which is a pretty expensive market. Any decent multifamily is going between $450k-$500k. I make $70k and have a 760 credit score so that should help with interest rates and PMI. Is it feasible to do an FHA (3.5% down) house hack in expensive markets like this? I just want to be able to lower my monthly expenses while living there and cash flow once I move out. Any insight or tips would be greatly appreciated!

Russell Brazil · Answer

Just be aware of the FHA self sufficiency test. This will eliminate 3 and 4 unit properties in most expensive markets. 2 units will still be good to go.

Michael K Gallagher · Answer

Hey @Christian G Leone Yes!  Do it!  its so powerful as a tool and as a way to start in investing...or even just to start wealth-building and hedging against inflation! You are the prime type of candidate in my mind for a duplex purchaser.  You are going to live there so you can use an easy and standard lender to get the deal, you are also going to be able to pay more than a competing investor for the building because you are leveraging most of your purchase.  So in my mind being a house hacker is a very powerful move in this market.  Don't get too hung up on the numbers in the near term, as long as it looks like it will lower your cost of living it will be a great move for the long term.  Just make sure you are comfortable with the projected rents in the area and have at least an inkling of a backup strategy...for example if you are going to be renting it out as a standard long term rental, if you needed to perhaps go section 8 or go with travel nurse housing....would the numbers still napkin out in that case?  Not that you would ever need to do them, I just like the piece of mind knowing "ok if this does not go as planned I at least have a direction to pivot".

Shawn Mcenteer · Answer

Hi @Christian G Leone FHA works but with the PMI and the fact most seller tend to not be a fan of FHA offers you may want to seek alternative options. Just imagine what the numbers may look like on a house hack not having to pay PMI and still paying a low percentage down. Reducing your monthly expenses is for sure possible, even in places like Bergen county.

Joseph Guzzardi Jr · Answer

@Christian G Leone yes it most definitely is. I am in an investment group where people have successfully done this in North New Jersey.

Shawn Mcenteer · Answer

@Boris you are 100% correct. Our first HouseHack we had PMI with our conventional loan, we dropped it in just 2 year from a simple appraisal which did not alert the loan itself.  What made it really cool was the fact we had PMI that was around $300/month and took out  HELOC for $80k.  For $150 more per month  ($300 off removing PMI, $450 added HELOC= $150 more/month) we got $80K for our next house hack.

What's 10x super cool right now is I am getting clients low money down owner occupied convectional no max income restrictions, as low as 3.5% with zero PMI

Anthony Stevens · Answer

@Boris Portnov

I was thinking about utilizing a FHA loan for my first investment purchase, but the problem is I wouldn't be house hacking, so with me not living at there, I'd have to use conventional lending.  I didn't know PMI stayed until the property is refi'd.  That is great information to know.  Good thing I read this!!!

Boris Portnov · Answer

@Shawn Mcenteer excellent answer buddy. It's also worth noting that with FHA lending stays on for the life of the loan. They only way to rid yourself of PMI is to refi at a future date when you have sufficient equity 78%.

However, it doesn't make financial sense to refi in the face of a rising rate environment. I would stay clear of FHA and try to qualify for conventional lending and lock in some cheap 30 year money....

Danielle Jackson · Answer

Depends on the actual property you are investing in. Do I think you should start the search based on what you said? Absolutely! But you need to have actual properties you are looking at. Sounds like FHA is the right route (of course assuming your DTI works), and the numbers pencil out, then sounds like the right move for your goals.

Joshua Janus · Answer

This would also be a great opportunity to try out STR in one of the units, and you would be able to easily manage that process.

Peter Vander Valk · Answer

Hi Christian,

As others have said, this could be possible. However, it would also depend on other factors such as your monthly debt payments and how much rental income the property could produce. In this market, just know that a lot of sellers don't like to accept FHA offers, so your offer won't necessarily be as strong as a conventional or cash offer. If you're persistent, though, there are places out there.

Best regards,

Pete

FHA Loan House Hack in Expensive Area?

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