House Hacking in N. Side of Chicago. What are financing options?

Question

Hello everyone- long time reader/listener to BP, first time poster. I am looking to house hack somewhere on the north side of Chicago and wanted to get some input from the knowledgeable folks on these forums. Here is a very brief rundown of my situation:

- First time home buyer (FHA?), looking at 2-4 unit multi family

- Focused on North Side (LP, Lakeview, Roscoe Village, Bucktown, Wicker Park, etc.)

- I’ve saved a decent amount for a down payment, have excellent credit, and a relatively higher salary from working for a technology firm

- I’m a single guy in my early 30’s so I have a lot of flexibility for living arrangements

One of my main questions is roughly what % I need for a down payment, and what is the rough debt to income ratio a lender would be looking for? I had a casual conversation with a real estate agent that typically sells condos, and he said for multi family in Chicago, you need 20-25% down and ~6 months of cash in the bank. That seemed quite different than what I had heard on BP, but wanted to ask this group.

Thanks VERY much for your input! I really appreciate it. Hope to learn more from this group.

Jake

Brie Schmidt · Answer

- you can do FHA with 3.5% down but you won't be anywhere near those areas as FHA loan limits are very low.  FHA also has a self sufficiency test on 3&4 unit properties which less than 5% of properties actually pass it.  Conventional is 15% on a 2 unit and 20% on a 3&4 unit.

FHA Loan Limit

Max Purchase   3.5%

2 Flat

$485,800

$503,420

3 Flat

$587,250

$608,549

4 Flat

$729,800

$756,269

Mark Ainley · Answer

@Jake Kinney I just sent you a DM of our guest last week @Christopher Puleo who spoke all about House Hacking financing.  Very informational 45 minutes on house hacking in Chicago specifically.

Stephanie P. · Answer

Jake

All these talented and successful folks have given you some great advice, but they have failed to tell you about mortgage insurance.  If you can put 20% down and avoid mortgage insurance altogether, you'll save a boatload of money over the life of the loan.  Even if you can't put the full 20% down, try to go conventional if you can.  The mortgage insurance is cheaper and  rates will be better.

If you go decide to go the 3.5% down route and go for FHA, there's an upfront Mortgage insurance premium of 1.75% (financed into your loan amount) of the loan amount and then an additional .85% that you'll pay each month for the life of the loan.  On a 400K purchase, your MI will cost you $6,755 (financed into the loan amount) and then $273.42 per month.  It doesn't fall off like conventional MI financing.  So the numbers look like this:  400K purchase price.  3.5% down is 14,000 taking the initial loan amount down to 386,000.  Add back in the upfront MI and your financed amount is $392,755.

Hope that helps

Stephanie

Michael Facchini · Answer

@Jake Kinney, first off congrats on taking the first step into house-hacking and multi-unit investing!  This is the most opportune first door to open in my opinion!  As to your questions, FHA is a great way to go for low down payment, but per Brie's breakdown below can be a bit limiting in loan amount (and thus buying power), which can make it very challenging to purchase a multi-unit in the neighborhoods you mentioned.  For FHA to work, if you want to access 3.5% or 5% down, you'd need to look at some of the developing neighborhoods on the fringe.  Otherwise, you can look at other programs such as Conventional which would require 15%-20% down.

Jake Kinney · Answer

Thank you, Jonathan! Appreciate the info and kind words.

Jonathan Klemm · Answer

@Jake Kinney - You should definitely link up with @Brie Schmidt who commented above.  She works in those areas and would more than likely be a really good fit for you.  Alternatively, @Sarita Scherpereel would be a good real estate agent for that area.

Also, sounds like you need to speak with a lender who understands investing, connect with @Michael Facchini or @Zack Karp, both of them work with investors and set up straight.

I am not a fortune teller, but I can tell you are definitely on the right path and a property is in your future haha

Reach out if there is any other way we can help you.

Jake Kinney · Answer

Hi Brie, thank you for the info! I listened to your interview on Straight Up Chicago and really enjoyed it. Would love to talk sometime.

Jake Kinney · Answer

Mark, thanks very much! I listened to the entire episode and found it extremely informative.

Paul De Luca · Answer

@Jake Kinney

@Zack Karp would be an invaluable resource to connect with regarding financing.

House Hacking in N. Side of Chicago. What are financing options?

Most Popular Reply