So I've been working hard the last month to learn all I can, and speak with lenders / agents and figure out a business plan. I'm at a point where I could use a little advice.
Just a little info on my current situation/plan. I live in Salt Lake City, Utah, and am currently renting an apartment, with a lease that ends in September. I would ideally like to owner occupy a 2-4 plex at the end of my lease. I just paid off my old car, which dropped my credit score from a 710 to a 680 (it was the longest history on my credit). I am currently sitting at a 25/33 DTI and am looking to get an FHA to owner occupy the property. I have about 10k in cash to put towards a down payment.
Now, I've spoken to 3 lenders this week to try and figure out how much I can actually get a loan for. I've tried to be very clear on what I want to do, but haven't been able to get a clear answer. I want to know what my range is so I can start looking at properties.
I've tried to keep what I say consise, like "I am currently looking for an FHA loan to owner occupy a multi-tenant property. I have a 680 credit score, but just recently paid off my car. I'm currently at a 25/33 DTI, but we can go over it if you'd like. I'm just trying to find out what range I can qualify for so I can begin looking at property."
Every single time they re-direct and start talking about getting me into a single family home with a conventional mortgage. Of the 3 that I've spoken to, none have even began to talk about my plan with me. They immediately diflect and try to push me into a single family. They've told me that it's too risky because I don't have landlord experience, but that can't be the only thing. If that's the case, where do you start? You gotta start somewhere, right?
So, Am I just talking to the wrong lenders? They've all been personal recommendations from family and friends. Is this plan just crazy? I've read blog posts and forum posts about "house hacking" working for other people. Could it just be that this is my first property and I don't have any landlord experience? I'm more than happy to pay for a property management company. Is there a lender here on BP that could just give me a rough estimate of how much I can qualify for?
I just feel a little lost at the moment, and would really appreciate your input.
Thank you all for taking the time to read this!!
-Emily from SLC.
@Emily Eustance Welcome to the forums! I think your plan sounds amazing, and if I could go back in time I would have got started with house hacking. It has so many advantages. I'm not sure why you are getting the run around from lenders, but another very important factor that you didn't mention is your current income. That will determine how much you will be able to qualify for. Have any of these lenders done a pull on your credit yet? Perhaps those lenders don't work with investors frequently. I have a few lenders I could recommend to you that I have personally used on some of my properties if you are interested. It sounds like you are putting yourself in a good position with your down payment and could still work on your DTI by the time you are looking to purchase in September. Good luck and let me know if I can be of help!
@Amy Kendall Thanks for taking the time to respond! I'm glad to know my plan isn't just crazy, haha.
So last year I made a little over 48,000 in gross income and have a $2 raise coming up in July. So far, none of the lenders that I've talked to have pulled my credit, as they only seem to want to look at conventional mortgages for single family homes. I'd rather wait until I at least have a lender who is on my side before we start pulling credit reports. Also I would love your lender contacts! That would be an immense help to me!
Thanks so much!!
@Emily Eustance You definitely have the right idea. A lot of lenders aren't well versed in how investors use creative loans like FHA and 203K, so having a good one is a huge help. A good realtor is also incredibly helpful for newer investors so dont take that decision lightly. Another thing to consider is the 4-3-2-1 plan with your properties. Especially if you know this is something you plan to do many times
That's an odd reaction. My only guess is that they mostly work with owner occupants and are kind of stuck in that mindset. I house hacked in SLC 3 times in 3 years, and I recall once when I was getting a loan, I suggested to the loan officer that we include the $1200/month rent I would be getting from my mother-in-law basement apartment to strengthen my DTI ratio. He told me "no way, don't even mention you're going to be renting out part of the house while you live in it. Underwriters hear anything rental and they assume higher risk." This sounded nuts to me; why would they prefer to lend to me paying the entire $1,900 alone vs me having to only pay $700?
Anyway, you just need to find the right lender and shouldn't have trouble. I'll PM you a recommendation.
Some good advice here already, but I second that you would be better off to find a great, investor friendly real estate agent. It's likely that they will help you navigate the lending process and likely work with lenders that are already versed in this. Also, many lenders are hesitant to give you any specific information without running your credit, because there are often issues on there that first time buyers forget or neglect to share. You don't have to tell a lender your entire investment plan- if you plan to live there whether it's a SFH or a fourplex, the loan should be the same. When you find a lender that you are comfortable with, fill out an application and get officially preapproved. Good luck!
@James Marshall Yeah all of the lenders I spoke with were personal recommendations from family and friends. They helped them get into their homes. So I'm with you on the idea that they were focused on a particular mindset. I want to thank you again for your recommendation! I appreciate it!
@Corby Goade Thanks for the advice! I've gotten a few recommendations from some other Bigger Pockets members, which is going to help me out a TON! I feel confident that the contacts I've gathered here will make a huge difference!
This is an awesome thread. I've got the same plan in mind for Central New York and I plan on meeting with lenders in the beginning of April to start shopping around so this is super helpful.
What should I bring with my meeting with lenders-- anything particular? I'm in my second year of business and, while I'm doing well and profiting, my personal DTI ratio is crappy-- are there any tips on how I can nail down an FHA loan? What if I have guarantee?
@Stephen Paunovski any lender is going to want to see all your pertinent financial documents. Whatever lender you go with will probably give you a list of what they want, but the list is usually very similar. This usually includes your last three years of tax returns and bank statements. When I first started, I created a 3 ring binder that included these things plus all the leases on my rentals and whatever else I thought they would need. I had a few of these binders and when I applied for a loan, I would just simply bring it into them. I had it well organized with tabs, and I think it was helpful because it showed them that I was organized. Now I usually just do everything electronically. Just be prepared, because no matter how much you provide in the beginning, they will always ask for more at some point.
@Amy Kendall You are AWESOME. Thank you for making my life easier here. I will definitely move forward with this binder idea
Let me pose another questions--
I'm a business owner and this past January I was able to quit my job and focus on it full-time. Just in the last 3 months I was able to secure over 18 contracts for video production work and just expanded to an LLC with my partner.
On paper my DTI sucks. In reality I'm doing well and reinvesting into a company that is growing and that I'm excited about it. My concern is that a bank will look at my DTI and just flat out reject me. How can I secure an FHA loan under these circumstances?
As a new investor, I would recommend keeping your housing expense as low as it can get. It might mean staying in an apartment and finding a property to invest in depending on the market.
In my area, if you purchase a smaller multi family at fair market value, it still might not throw off cash flow for you or even decrease your current housing expense from what it is now.
You should be able to find a lender that will underwrite 1-4 conventional loans, but make sure you find the right place to invest in as it could potentially hurt your ability to grow if the numbers do not work well.
The 4-3-2-1 plan is a way to house hack without being flagged as someone taking advantage of the system. If you FHA a 4 unit, you can get out of it by saying you want to "improve your quality of life" by switching to a 3 family, then do the same thing and move into a 2 and then again to get a single family. It is just a strategy to keep the lenders from catching on to what youre doing because they might stop giving you FHA loans if they think youre just going to move out right after.
@Patrick Hermans Thanks for the reply. Interesting.. And as a person would move into the next unit using the FHA Loan, they'd refi the older unit into a conventional loan?
In theory yes, but its not that simple. You would need 75-80% LTV to refinance and it would take over a decade to gain enough equity to refinance without making some serious principle payments
I'm a Real Estate agent in Bountiful close to you here in Davis County. There are a few lenders that do better at the Multi-family area along with those lenders that work more with FHA specific loans. You also have a potential option with Utah Housing loans as well where I could get you in touch with the VP of Mortgage Banking to see what option you may have.
I know in Davis and SLC county the 2-4 plex units are hard to come by right now and you may want to look at a single family unit with a mother in law apt you can rent out to someone that is family as well to help you start in your house hack. Not sure what city your looking in I have a few in Centerville and in Bountiful that have worked out really well. Let me know if I can help.
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