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

Multi-Family and Apartment Investing
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House Hacking in N. Side of Chicago. What are financing options?

Jake Kinney
Member since 2020 · 5 posts · 2 votes

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


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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
5y

- 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
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  • Rick MartinPro Member
    Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
    5y

    @Jake Kinney, if you qualify for an FHA, it is my understanding you can put down as little as 3% down. Remember, the more leverage you use, the less cash flow you will receive, so sometimes putting a little more down doesn't hurt. Talk to a lender and find out what you can qualify for.

    0Reply
  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @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.

    [email protected]630-781-6744Podcast Guest on Show #72
    GC Realty & Development LLC4.61061 Reviews
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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    5y

    - 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
    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    3Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    5y

    @Jake Kinney

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

    0Reply
  • Jake Kinney
    OP
    Member since 2020 · 5 posts · 2 votes
    5y
    Originally posted by @Mark Ainley:

    @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.

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

    0Reply
  • Jake Kinney
    OP
    Member since 2020 · 5 posts · 2 votes
    5y
    Originally posted by @Brie Schmidt:

    - 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

     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. 

    0Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    5y
    Originally posted by @Jake Kinney:

    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.

    % you need for a downpayment ranges from 3.5% (FHA) to 20% (Conventional)

    Debt to Income Ratio- Usually 35 to 38%

    6 months cash reserves is what you should have irregardless of what a bank says. It's a CYA number.

    312-681-7487
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  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @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.

    [email protected]
    Quality Builders4.968 Reviews
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    0Reply
  • Jake Kinney
    OP
    Member since 2020 · 5 posts · 2 votes
    5y

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

    0Reply
  • Michael Facchini
    Lender · Chicago, IL · Member since 2017 · 438 posts · 193 votes
    5y

    @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.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Jake Kinney:

    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



    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 

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