How are you guys getting these loans

Question

Hey! I see all the time people saying "Buy a duplex or 4 unit as your primary and rent out the other units"

To buy a duplex or 4 unit where I am you are looking at 300k MINIMUM, you gotta have a good job to even qualify that. How are you guys doing it if you don't have a super high paying job?

Am I missing something?

Katherine Blazer · Answer

So with Convention and FHA mortgages, you can use 75% of the projected income for the additional 1-3 units to offset the mortgage. You will still need to save up for the downpayment and closing cost, which will increase as your unit price increases. Which these options, though, you can be looking at 3-3.5% down. You just need to find a knowledge lender in your state.

James Robert · Answer

I know 90k is not super high income but for someone who is 25 like me, I am not making 90k yet so I have to get creative. That is good to know that you can get credit for the current rented units. Maybe i need an investor friendly lender..

Scott E. · Answer

I would not consider $90k per year anywhere near 'super high' income.

To answer your question though, you should be able to buy a deal like this with an FHA loan and 3.5% down, or a conventional loan with 5% down. So on a deal this size we're talking about $15k-$20k. That's easy enough to save up.

On the debt-to-income ratio side, if the other units are occupied when you buy, the lender should be able to give you credit for that rental income, which will lower your debt-to-income ratio. The lender will not give you credit for 'border income' which is from roommates. But they should be able to account for rents coming from other units in a 2-4 unit deal.

David Kelly · Answer

FHA with a down payment assistance program.  There is a National program called WISH.  It allows for up to $22,000 fully forgivable grant after 5 years.  Its a 4:1 match up to 22k.  So you bring $5500 to closing and the additional 22k is added for a total of $27,500 towards down payment and closing costs.

You need to qualify based on the income that you have where you are currently living.

Michael Dumler · Answer

@James Robert, which market are you located in? A house hack deal doesn't necessarily have to be a 2-4 unit property like you hear. Given your financial position, you're going to have to get creative. I've had clients purchase SFHs that have an in-law suite that performs great as an Airbnb or LTR. I've also had clients simply rent out the rooms to cover the mortgage plus some. This is my opinion but forgot about what you hear when it comes to "creative financing" and "no and low money down." The reality is, it's more important to focus on and take care of the boring but basics first. Build your credit, save religiously, work in a W2 position so lenders will take you seriously, etc. Also, when you hear, "buy a duplex or 4 units as your primary and rent out the other units", a lot of that is coming from early BP podcasts when the market was entirely different. Not saying it's impossible today, but the competition is much more fierce. Hope this helps!

Percy N. · Answer

@James Robert, you need to have some savings/income before investing in real estate, otherwise, unforeseen costs can pose a great risk.

I would follow the 1/3rd rule - don't buy a house for more than 1/3rd of your income in debt/mortgage payments.

If capital is an issue, see if you can find a partner who can help fund part of this or another investment where you do the legwork or heavy lifting and they provide most of the capital.

Join your local REIA and network.

James Robert · Answer

Thats what I am saying, how are people buying these properties without having a SUPER High income. You cant get approved for like 400k without making 90k or so..

Percy N. · Answer

@James Robert, the benefit of a 4 unit vs a 5+ unit is that under 4 units are still considered "single family" and you may be able to get a loan as your primary residence with a comparatively low down payment.

However, make sure you can afford the place even if rent collection drops and make sure you are conservative in your expense projections.

Lorenzo Prieto · Answer

Hey Robert great question! So I know there are a bunch of different creative ways to make deals like this happen. Personally, I'm mainly a conventional lender so I would direct you to speak with a lender and see what you qualify for. There are a lot of loan programs out there that can assist you to purchasing your first house hack deal with little money down. Of course you would still need to qualify with your credit, debt ratios, and other things but first step would be to do a little research on loan programs or better yet leverage a lender and have him/her do some research on what loan products would work best for you.

How are you guys getting these loans

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