Hurdles trying to obtain FHA loan in MA
Hello,
I live in Massachusetts and currently have a loan out on my primary residence which is a 2 bedroom condo. I recently applied to get pre-approved for an FHA loan to purchase a multi-family home which I was going to move into as my new primary residence. The loan was denied because of the below clause:
(b) FHA-Insured Mortgages on Principal Residences
FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. FHA will not insure a Mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA mortgage insurance
I know a lot of people use FHA for multi-family but is it always the first loan they take out? Has anyone else ran into this hurdle? Any way I can still use an FHA loan without paying off the entirety of my current loan first? Is this something lender specific?
Thanks!
So this is tricky. I am living in my 3rd househack now I ran into this as well more than once. Basically to make someone believe you are not trying to use the FHA loan "as a vehicle for obtaining investment properties" you have to have a "jump" i.e. the underwriters ask themselves "Why would someone want to buy a not-so-amazing quadplex in a not-so-amazing area when they already own a perfectly good, updated 2 bedroom condo in a great area close to work?" In my experience, this is also true for other types of financing for primary residences.
For this reason, many people start with a multifamily home then "jump" to a better quality one in a better area or to a townhome, small single family home, etc. Then, the next "jump" might be a larger single family home or a single family home with a garage, a single family home walking distance from work, a home with a backyard etc etc.
You basically just have to be able to justify the move with something tangible.
Your options are:
1. Buy something that is a "jump" and househack that ..so in your case, buy a single family or a townhome.
2. Refiance your condo into a commercial loan or investment property loan
3. Call, call, and call lenders until you find someone who thinks they can get this through underwriting. In my experience, its very unlikely.
Quote from @Nick Miano:
Hello,
I live in Massachusetts and currently have a loan out on my primary residence which is a 2 bedroom condo. I recently applied to get pre-approved for an FHA loan to purchase a multi-family home which I was going to move into as my new primary residence. The loan was denied because of the below clause:
(b) FHA-Insured Mortgages on Principal Residences
FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. FHA will not insure a Mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining Investment Properties, even if the Property to be insured will be the only one owned using FHA mortgage insurance
I know a lot of people use FHA for multi-family but is it always the first loan they take out? Has anyone else ran into this hurdle? Any way I can still use an FHA loan without paying off the entirety of my current loan first? Is this something lender specific?
Thanks!
I couldn't go down the FHA route because I bought my house hack last year during a sellers market. Sellers wouldn't even take a FHA buyer seriously because that property has to pass a FHA inspection to get approved.Now that it is more of a buyers market depending on your local market you might be okay with FHA. If there is still a ton of competition in your area look into conventional. I just talked to my loan officer and there are 3.5% down on Conventional as well for a personal residence. Just something to look into.
Quote from @Katherine Serrell:
So this is tricky. I am living in my 3rd househack now I ran into this as well more than once. Basically to make someone believe you are not trying to use the FHA loan "as a vehicle for obtaining investment properties" you have to have a "jump" i.e. the underwriters ask themselves "Why would someone want to buy a not-so-amazing quadplex in a not-so-amazing area when they already own a perfectly good, updated 2 bedroom condo in a great area close to work?" In my experience, this is also true for other types of financing for primary residences.
For this reason, many people start with a multifamily home then "jump" to a better quality one in a better area or to a townhome, small single family home, etc. Then, the next "jump" might be a larger single family home or a single family home with a garage, a single family home walking distance from work, a home with a backyard etc etc.
You basically just have to be able to justify the move with something tangible.
Your options are:
1. Buy something that is a "jump" and househack that ..so in your case, buy a single family or a townhome.
2. Refiance your condo into a commercial loan or investment property loan
3. Call, call, and call lenders until you find someone who thinks they can get this through underwriting. In my experience, its very unlikely.
Thank you! This seems to be exactly what's happening. My lender said I should write an explanation letter to the underwriter explaining why I'm moving from my condo to a multifamily and of course I was honest saying I wanted it as an investment property and to use it as an opportunity to get landlord experience. The underwriter rejected it for that reason. I was considering going the townhouse route as well so this might be what I do. Thank you for the advice! Time to get a little creative :)
I couldn't go down the FHA route because I bought my house hack last year during a sellers market. Sellers wouldn't even take a FHA buyer seriously because that property has to pass a FHA inspection to get approved.Now that it is more of a buyers market depending on your local market you might be okay with FHA. If there is still a ton of competition in your area look into conventional. I just talked to my loan officer and there are 3.5% down on Conventional as well for a personal residence. Just something to look into.
Thank you! What I'm finding is that conventional single family loans I can get for ~5% down but once I start looking at conventional loans for 2 unit they go up to ~15% down and higher the more units the property is.
Quote from @Nick Miano:
I couldn't go down the FHA route because I bought my house hack last year during a sellers market. Sellers wouldn't even take a FHA buyer seriously because that property has to pass a FHA inspection to get approved.Now that it is more of a buyers market depending on your local market you might be okay with FHA. If there is still a ton of competition in your area look into conventional. I just talked to my loan officer and there are 3.5% down on Conventional as well for a personal residence. Just something to look into.
Thank you! What I'm finding is that conventional single family loans I can get for ~5% down but once I start looking at conventional loans for 2 unit they go up to ~15% down and higher the more units the property
You should consider shopping around for a different loan officer maybe a broker. I closed on a duplex with 5% down December of last year. Am looking for my next house hack and my loan officer mentioned I could get approved on a 5% down 2-4 units as well. She even mentioned she could factor rents from the current unit I live in to lower my debt to income ratio. Don’t give up and settle for something you don’t wanna live in either.
Quote from @Juan Erick Rico Avalos:
Quote from @Nick Miano:
I couldn't go down the FHA route because I bought my house hack last year during a sellers market. Sellers wouldn't even take a FHA buyer seriously because that property has to pass a FHA inspection to get approved.Now that it is more of a buyers market depending on your local market you might be okay with FHA. If there is still a ton of competition in your area look into conventional. I just talked to my loan officer and there are 3.5% down on Conventional as well for a personal residence. Just something to look into.
Thank you! What I'm finding is that conventional single family loans I can get for ~5% down but once I start looking at conventional loans for 2 unit they go up to ~15% down and higher the more units the property
You should consider shopping around for a different loan officer maybe a broker. I closed on a duplex with 5% down December of last year. Am looking for my next house hack and my loan officer mentioned I could get approved on a 5% down 2-4 units as well. She even mentioned she could factor rents from the current unit I live in to lower my debt to income ratio. Don’t give up and settle for something you don’t wanna live in either.
I'm definitely going to shop around more. Thanks for the advice!
You can use FHA multiple times and it does not need to be only your first time owning a home. This is a common misconception. You should shop around lenders as there's plenty of people who have done this to success. You will need to lease your condo out and have a lease in hand before buying the multi.
Quote from @Lien Vuong:
You can use FHA multiple times and it does not need to be only your first time owning a home. This is a common misconception. You should shop around lenders as there's plenty of people who have done this to success. You will need to lease your condo out and have a lease in hand before buying the multi.
I'd be interested in learning more about this if anyone has more information
@Tom Wagner feel free to connect with me if you want to go over this, happy to share my perspective of it.