Woodbridge, NJ · Member since 2017 · 51 posts · 10 votes
For house hacking through an FHA loan, and as per some of the pro video workshops I viewed, you can restart a house hack after just one year (not two years)? I live in NJ and want to make sure of this going forward as I set my goals. Thanks for any replies.
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Nick P. I house hacked a multi via a FHA loan and one thing you need to keep in mind is getting out of the FHA loan. As mentioned earlier you can only have one FHA loan at a time hence you need to refinance out of your first FHA to get access to your next house hack. The issue there is going from a FHA to a 20% conventional. You need at least 20% equity to get out of the FHA loan so its tough to build up the equity from 3.5% to 20% in one year even with forced appreciation. That is the issue I am running into, I am trying to get out of my FHA loan so I can house hack another property but am having a tough time getting to the 20% threshold to refinance out. Just something to keep in mind.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
4y
Hey Nick!
I'm on my second house hack and used the FHA 203(k) loan. Typically in the loan documents the lender wants you to stay in the home for a minimum of 1 year. However, life happens so some lenders will let you move sooner without hassle. Just keep in mind it is 1 FHA loan per borrower, so you will need to refinance out of it in order to use the program again.
Woodbridge, NJ · Member since 2017 · 51 posts · 10 votes
4y
@Rick Albert
You said you need to refinance to get out of the current FHA loan in order to proceed into the next one? As is the case when you BRRRR? Just want to make sure that's what you meant.
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Nick P. I house hacked a multi via a FHA loan and one thing you need to keep in mind is getting out of the FHA loan. As mentioned earlier you can only have one FHA loan at a time hence you need to refinance out of your first FHA to get access to your next house hack. The issue there is going from a FHA to a 20% conventional. You need at least 20% equity to get out of the FHA loan so its tough to build up the equity from 3.5% to 20% in one year even with forced appreciation. That is the issue I am running into, I am trying to get out of my FHA loan so I can house hack another property but am having a tough time getting to the 20% threshold to refinance out. Just something to keep in mind.
@Nick P. I house hacked a multi via a FHA loan and one thing you need to keep in mind is getting out of the FHA loan. As mentioned earlier you can only have one FHA loan at a time hence you need to refinance out of your first FHA to get access to your next house hack. The issue there is going from a FHA to a 20% conventional. You need at least 20% equity to get out of the FHA loan so its tough to build up the equity from 3.5% to 20% in one year even with forced appreciation. That is the issue I am running into, I am trying to get out of my FHA loan so I can house hack another property but am having a tough time getting to the 20% threshold to refinance out. Just something to keep in mind.
This right here is why FHA loans suck to begin with. FHA loans have strict criteria and limits on the condition. Go conventional if you qualify and buy distressed properties that need some work. Livable but ugly and outdated. Force the value by fixing up the property.
If your strategy is banking on future appreciation I pray for you especially in 2021.
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Jaron Walling - I 100% disagree that FHA loans suck, but I respect your strategy. They offer tremendous benefits including assisting with the DTI of low qualifying buyers by adding in the rental income to your gross income for multi-family properties. In addition, normally for conventional, you have to bring 20% down unless you qualify for a low down payment conventional which usually has income requirements. I honestly think its a fantastic investment vehicle for new investors looking to house hack multis. With only bringing 3.5% into it, your overall cash on cash return is ridiculous over time.
@Nick P. - FHA's require you to buy a decent property so you can't get too much of a fixer upper unless you go with a FHA 203K rehab loan. Those loans are great for renovation projects with low down payment but come with a pile of red tape which usually slows down the renovation greatly. I see those renovations taking 2-3 times longer than normal renovations. Regarding my house hack, it was in great condition but two units did need renovations. Over the year, I did some improvements but did not get quite to the 20% equity, more like 15-17%. You can always bring more cash to the table if you want access to your FHA loan a year in or you have to wait a little longer until your house appreciates to the level you need it.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
4y
FHA loans are great, but keep in mind they were created for owner occupants. The entire purpose of FHA is to help people achieve home ownership, not to help investors. Yes, you can rent rooms or rent the property after the occupancy period, but you can't have more than one FHA loan or use them for pure investment from day one. There are some exemptions to exit occupancy early, but they are strict rules enforced by underwriting, not up to the lenders discretion. @Andrew Freed you do not need to bring 20% down for conventional mortgages if you are owner occupying. For owner occupied, there are 3% options on Fannie/Freddie backed conventional mortgages. Going conventional avoids the FHA inspection and some of the differences in mortgage insurance that may not be desirable. FHA may offer advantages for rehab situations or multifamily, but on single family it is a good idea to compare.
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Joe Splitrock - Good points. I'm more of a multi-family investor so it aligns with my goals but you give some really solid advice, especially in regards to SFHs. Low down payment conventional loans are very restrictive for owner occupied multis which are some of the challenges I am running into.
Woodbridge, NJ · Member since 2017 · 51 posts · 10 votes
4y
@Joe Splitrock
You said you can't have more than one tenant (duplex scenario) in order to obtain owner occupied FHA loan? So an owner occupied triplex or fourplex wouldn't have an approved FHA loan?
Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes
4y
@Andrew Freed I'm about to house hack with FHA with the one my goals of getting rid of PMI once I reach 20% equity. I will sprucing up one of the units (the one I will live in) and eventually get to the other unit but someone is already renting. Now I'm scared I won't be able to reach the 20% mark after what you said. This property is in the Midwest area so appreciation isn't my friend here.
@Joe Splitrock Don't need 20% for owner occupied but 20% I order to get rid of PMI though right?
On a conventional mortgage you can get rid of PMI when you reach 20% equity. (It is 30% equity for 2-4 unit personal residence.) With FHA, if you started with under 10% equity, MIP lasts the life of the loan. The only way to get rid of it would be refinancing into a conventional loan with 20% equity. That is a major difference between FHA and conventional. Not a deal breaker, but don't expect to keep your FHA loan and get rid of mortgage insurance if you put less than 10% down initially.
@Joe Splitrock So I would need to refinance to into conventional and have atleast 20% equity either from principal pay down or enough renovation?
Yes 20% equity based on new appraised value. Rehab is a good way to force appreciation, but it costs money. Over time, values generally increase too. If you rehab and time don't get you there, it may require cash.
Banker · New York, NY · Member since 2021 · 91 posts · 19 votes
4y
Hey @Nick P., You can always house hack an FHA loan as long as it's a multi-family and you are the primary resident in one of the units. If it is a single-family home, after a year you can always refinance your loan into a conventional and have the freedom to rent all units. Always consult with a lender to make sure you're following the guidelines. What are your long-term investment goals?
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Jesse Rodriguez - Yes, that is always a risk, but just be sure that you do a comprehensive ARV analysis before you request the refinance to ensure you are at the 20% threshold. Then when you schedule the appraiser, provide comps and a detailed package of all the improvements you made. This will increase the likelihood that the house will appraise where you want it.
Another alternative if your property is close but doesn't appraise for the price you want, rather than bringing money to the table, you can also accept a higher interest rate and the lender will pay you. You can then use those funds to cover the surplus at closing. A lot of people don't like this strategy but its useful if your goals are to grow quickly. More cash now is better than more cash later if you ask me.
Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes
4y
@Andrew Freed Thanks for that info! I love learning new things. What do you think the chances are of getting up to 20% off touching up the unit like paint, flooring and other cosmetic things?
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Jesse Rodriguez - Look at fully renovated multi's in your neighborhood close to the bedroom and bathroom count, square footage, within 0.5 miles away and sold in the last 3 months. Whatever those sell for, it'll be around that range. That should give you an idea of your chances.