Hi all! Fairly basic question. I am looking at a two unit property that is fully rented, and can't make the numbers work using an FHA loan. I have the capital to put a little more down with a conventional loan (15-20%), but my mortgage lender is telling me that if I am not planning to live there, I would need to put down 25% for an investment style loan. Any ways around this?
I am interested in using this property to house hack down the line, but the property already has two long term tenants and I have no immediate need to move/no living expenses currently. Would love to let these tenants keep paying off the property for the next year or two if possible. Thanks!
@Account Closed not all deals are worth investing in. If the numbers are already that tight for you, one bad stretch of vacancy or major repairs and you're going to be hurting
This is where I'm at with this. It sounds like you're trying to make a deal work. The problem isn't that you need to make this deal work, it's that you don't have enough deals to choose from. The question then becomes, "how are you looking for deals?" It's important to remember that on the MLS, in a lot of areas, people are bidding things up like crazy. So how can you find more deals that will work best for your portfolio? That's the question.
@Account Closed investment properties are higher risk, therefore they want 25% to secure a non-owner occupied loan. For what it is worth, I have 10 conventional mortgages and had to put 25% down on my most recent acquisition. That is just what the underwriter requires for conforming loans.
You may find a non conforming loan that allows lower down payment. They make up for risk by charging higher rates, points or fees.
You are stuck unless you can find a private lender that would be willing to offer less. ie family member. Otherwise you will blow your returns with higher rates. Good Luck. :)
Thank you both! So if I am looking at a 15-20% conventional loan, would I need to evict one of the tenants to occupy one unit? Do I have any obligation on how long I need to live there before filling the unit again?
Thank you both! So if I am looking at a 15-20% conventional loan, would I need to evict one of the tenants to occupy one unit? Do I have any obligation on how long I need to live there before filling the unit again?
Typically it's one year. Bear in mind that in most states, you have to honor the tenant's current lease, so you'll want to check to see when those leases end.
Thank you @Nicole Heasley Beitenman! Looks like even if I take the hit and don't collect rent from one unit for a year, I would still come out with less money out of pocket than putting an extra 10% down. Still have to work through the finances, but this is really helpful just to confirm!
I would look into possible down payment assistance programs in your city. There are a few available in my market. If this property is off market, or if you find another, you would have a higher chance of potentially pulling off a seller finance deal with a lower down payment. I am currently working on a 5% down seller finance deal and I found the owner through a cold call then met him in person.
Another option is to use hard or private money to fund the down payment on a value add property, and to use your own capital to fund the repairs then refinance 6-12 months down the road.
@Kristin Caras a few people have said something along the lines of being “stuck” with the down payment numbers but I would disagree. It may take more leg work to find a bank willing to do it but with my very first deal a small local bank only required 15% down. I was able to get the house at a great price, the house appraised for 24k over agreed purchase price, and was actually able to close the deal at only 10% down because of that. However, the term was 20 years, but we are still able to cash flow and it was the least amount of money out of pocket I could come up.
@Account Closed not all deals are worth investing in. If the numbers are already that tight for you, one bad stretch of vacancy or major repairs and you're going to be hurting
Thanks guys! Just to clarify the FHA 3.5% down was where the numbers didn't work, but 15-20% down the property has positive cash flow. I would like to occupy one of the units long term, so even if the deal isn't a total homerun, the house hack would pay off a good chunk of the mortgage which I can appreciate.
@Account Closed not all deals are worth investing in. If the numbers are already that tight for you, one bad stretch of vacancy or major repairs and you're going to be hurting
This is where I'm at with this. It sounds like you're trying to make a deal work. The problem isn't that you need to make this deal work, it's that you don't have enough deals to choose from. The question then becomes, "how are you looking for deals?" It's important to remember that on the MLS, in a lot of areas, people are bidding things up like crazy. So how can you find more deals that will work best for your portfolio? That's the question.