Can I use an FHA on a mult-fam property?

18 Replies

If this is a dumb idea, please call me out on it. My wife and I are thinking about making our first home a multi family home (duplex to fourplex range), and I'm wondering what the best financing option would be. In my area these properties start off at 200k. We don't have 20% to put down, I'm not interested in borrowing money from relatives, and I don't like the sound of zero down deals just yet. Could I do something like an FHA since this is our first house even though it would be a multi? Are there any other low % down payment financing options out there?

Any advice or experience would be really appreciated. Thanks!

FHA for a multi-unit home(up to 4) is a good way to get started in real estate investing. You as long as you qualify for the loan, you will have no problem with loan limits at that price range.

Patrick,

I'm not sure about FHA but it might be possible to put 10% down on an owner occupied SBA commercial loan. Renting units is a valid business for the SBA. The rate for that right now is 6%.

I am currently doing the same thing have 20% down for around a 100k property but I have found a beautiful quadplexes for 200k so I'll be putting 10% down to create more cash flow for myself. Goodluck with your first property!

FHA is not only for first time
Home Buyers. If you have had an FHA loan in the past you could qualify again for one.

@Patrick Ketchum

My wife and I bought a 4-plex in Salt Lake City just 7 months ago using FHA with just 3.5% down. It has worked out really well for us as our first investment property. Currently you are probably looking at a 4% interest rate on FHA.

You do have to occupy the property for at least 1 year so that is something to consider. Our lender also applied 75% of in-place rent towards our income for qualifying which also was awesome in allowing us to get into a 4-plex. PM me for our lender contact! Good to have another guy from Utah!

Some very good suggestions already here. I also got started by buying a four unit building and got an FHA loan with only 3.75% down. I had to talk to four different lenders before I found one that could use past rents to help me qualify for a larger loan. Holden is right, you have to live in it for at least a year, so you'll need to make arrangements for that. Most local lenders can do a conventional loan for around 5% down that is also owner occupied.

Owner occupied small multifamily deals are a GREAT foot in the door for new investors. Get the hang of property management, get the hang of keeping up with maintenance. Be sure you keep some cash on hand for reserves - the underwriters at the bank are going to look for that as well. It will be really important to not over leverage yourself - any loan can be risky if you have to put every dime you own into the down payment. It might be a good idea to ask your lender up front how much they'll be looking for in reserves on top of your down payment, so neither of you are wasting the other's time. If you can find a lender that understands what you are doing and that routinely works with investors, you could include them in your future planning for deals and positioning of your assets. A good lender should be a part of your investing "board of advisors"

@Skyler Smith

Great advice. Creating good lender relationships is a real key to future success. Putting them on your investing "board of advisers" is an awesome idea. 

At closing I also was required to have a reserve of 3x the expected mortgage payment as part of qualifying. This amount was not actually collected; the lender just wanted to make sure I had enough cash on hand to weather major issues. You don't want to sink every dime you have into an investment. If things turn south you could be in trouble pretty quickly.

@Patrick Ketchum

Looking at your bio it appears that you own a company and are self employed? This may be your biggest hurdle in your ability to get a traditional loan. Most lenders are extremely wary of non traditional or W2 income especially if you do not have years of income history. Just something to think about moving forward.

Originally posted by @Holden Latimer :

@Patrick Ketchum

My wife and I bought a 4-plex in Salt Lake City just 7 months ago using FHA with just 3.5% down. It has worked out really well for us as our first investment property. Currently you are probably looking at a 4% interest rate on FHA.

You do have to occupy the property for at least 1 year so that is something to consider. Our lender also applied 75% of in-place rent towards our income for qualifying which also was awesome in allowing us to get into a 4-plex. PM me for our lender contact! Good to have another guy from Utah!

 Way to go Holden!!   Let us know how this turned out.  is everything working well with the 4Plex?

I really appreciate the great advice. To summarize it sounds like we can do an FHA on a multi-fam home, or something similar, but that we would also need to save reserves as part of the lender approval process of 3 mos of PITI mortgage payments. It also sounds like I need to start talking to lenders about the fact that although my wife is a W2 employee, I am a business owner and there may be some additional roadblocks in the process because of that.

Thanks for your help!

@Patrick Ketchum

That sounds promising that your wife is a W2 employee. Unless she makes a significantly high income by herself though, it may be difficult for you guys to qualify up to the 4-plex level, but I would think you could for sure qualify for a duplex or triplex.  Sounds like you have the initiative to make it happen even though it may not be easy. I can tell you it is worth it if you find the right property! Again send me a message if you want contact info of the lender we used.

@Travis Fisher

Things have gone extremely well. We planned on getting in and making significant interior and exterior improvements. We timed the buy well with already significant lag in rents. In the first six months we have raised rents by about 20% and are already at year 3 of my initial pro forma. Last couple months CF has been close to $1000/month. Expecting to easily CF over $1000/month going forward (this includes our rent savings) and in about 2 weeks will be closing on an FHA streamline refinance that will decrease our monthly mortgage payment by about $250/month. Should be a solid start to our investment portfolio.

My initial strategy was to focus on long term buy and hold properties, but since I am young and cash poor I am starting to lean towards doing some shorter term buy & flip opportunities for my next deals. Would love any advice on how good the flip market is along the Wasatch Front.

Originally posted by @Rita Bautista :

Patrick,

I'm not sure about FHA but it might be possible to put 10% down on an owner occupied SBA commercial loan. Renting units is a valid business for the SBA. The rate for that right now is 6%.

Its a bit off topic Rita we're talkign 1-4 unit residential FHA (federal housing administration) programs. FHA can finance 2-4 unit with as little as 0-3.5% down.

SBA is commercial and could be added into another thread for owner occupied commercial where business occupancy is 51% of gross rentable space, not owner occupied residential financing.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

Originally posted by @Patrick Ketchum :

If this is a dumb idea, please call me out on it. My wife and I are thinking about making our first home a multi family home (duplex to fourplex range), and I'm wondering what the best financing option would be. In my area these properties start off at 200k. We don't have 20% to put down, I'm not interested in borrowing money from relatives, and I don't like the sound of zero down deals just yet. Could I do something like an FHA since this is our first house even though it would be a multi? Are there any other low % down payment financing options out there?

Any advice or experience would be really appreciated. Thanks!

Yes there are Patrick, I've addressed this in a couple threads about FHA 3.5% down programs and conventional programs for 2-4 unit as well as low as 5% down. The nice part about conventional financing is that there is flexibility to eliminate the monthly mortgage insurance as well if you structure the loan correctly while FHA has monthly and upfront financed MI for the life of the loan. There are pros and cons to each from a down payment aspect, an income qualifying aspect, and a credit qualifying perspective.

Best of Luck!

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

@Albert Bui

You bring up a good point. I didn't realize that you couldn't get rid of the mortgage insurance on an FHA even once you built more equity in the property. I imagine that could limit CF down the road.

yes you can use a tha loan. I'm actually looking for a 3-4plex unit now in maryland. They don't seem to be very popular here though.

@Patrick Ketchum    I've been hunting down some multi fam's for another client here in Provo and I've seen a lot of what's available out there right now.  I'd love to help you out if that's what you're looking for.

Hello Patrick.

You can do an FHA on multifamily properties up to four units as long as it's an owner occupied. Meaning you must live in one of the units. Down payment as low as 3.5% for first time buyers.

I hope this helps.

Desmond