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Naseem Razek
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FHA requirement question

Naseem Razek
Posted Mar 28 2023, 14:24
Hello all,
This is my first time posting here so please excuse me if I'm missing anything. I currently have a conventional mortgage 7/6ARM. I am looking to rent that single family home and purchase a multifamily property using FHA loan in order to lower my required down payment. When I purchased the SFH I assumed that lenders would take some percentage of the rental income and apply towards my DTI. Now that I am ready and speaking to lenders I've been told that FHA guidelines will not allow the use of rental income from my currently mortgaged property. That lender is telling me my options are to sell my current property and proceed with FHA or put down 25% on the multi-family. Is this accurate information? What are my options if my goal is to put down as little as possible and house hack?
-Current property was purchased 3 months ago through my credit union as primary residence but they are allowing me to move early.
-Income is just over 10k/month - current mortgage 2900/m including tax and ins, no other debts - multifamily property will be in the neighborhood of 500,000 purchase price

Any advice would be greatly appreciated! Thank you

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Ryan Thomson#1 House Hacking Contributor
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Ryan Thomson#1 House Hacking Contributor
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Replied Mar 29 2023, 09:30

Hmmm that sounds incorrect or at least there is a different way to approach this. I would consider a couple things:

1. Talk to a different lender that understands what you are trying to do

2. Usually you can take 75% of a lease to go towards your DTI

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Reid Chauvin
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Reid Chauvin
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Replied Mar 29 2023, 09:39

@Naseem Razek - FHA DOES allow you to use rental income. You will need an executed lease for the property, and 75% of that will factor into your DTI. Rental income for the other units of the multi-unit property you plan to purchase may be factored in as well, and the appraiser will determine what the 'market rent' is for those additional unit(s).

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Jaron Walling
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Replied Mar 29 2023, 09:58

@Naseem Razek Without selling your current primary residence you'll need 25% for the DP, and a signed lease. If you're trying to get around that best of luck. Our local credit union more than likely wouldn't qualify us for an FHA for an investment property. Do your research and draw your options, but it's designed for first time home buyers. You don't see investors utilizing multiple FHA loans. Generally speaking it limits distressed property opportunities (killing the BRRRR strategy).

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Lawrence Potts
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Lawrence Potts
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Replied Apr 17 2023, 10:09
Quote from @Naseem Razek:
Hello all,
This is my first time posting here so please excuse me if I'm missing anything. I currently have a conventional mortgage 7/6ARM. I am looking to rent that single family home and purchase a multifamily property using FHA loan in order to lower my required down payment. When I purchased the SFH I assumed that lenders would take some percentage of the rental income and apply towards my DTI. Now that I am ready and speaking to lenders I've been told that FHA guidelines will not allow the use of rental income from my currently mortgaged property. That lender is telling me my options are to sell my current property and proceed with FHA or put down 25% on the multi-family. Is this accurate information? What are my options if my goal is to put down as little as possible and house hack?
-Current property was purchased 3 months ago through my credit union as primary residence but they are allowing me to move early.
-Income is just over 10k/month - current mortgage 2900/m including tax and ins, no other debts - multifamily property will be in the neighborhood of 500,000 purchase price

Any advice would be greatly appreciated! Thank you

As mentioned earlier, you'll need a signed lease that shows sufficient income to cover the mortgage. I believe they take a percentage of that gross rental income and apply it towards your DTI. Lenders are all different and I encourage you to speak with multiple lenders, especially those that invest in real estate themselves and know what you are wanting to accomplish with this purchase.

@Jaron Walling I think Naseem is wanting to house hack using the FHA mortgage, so as long as he is intending to occupy it within 60 days of closing for at least 12 months, he can use the FHA mortgage for any property 1-4 units as long as it passes appraisal (not too distressed like you mentioned).

FHA may have issues with you moving on to the next property so soon, they are vary weary of their product being utilized as an investment product (intended for first time home buyers), you may be asked and required to provide an LOE (letter of explanation) as to why you are moving (financial distress, new job, etc), but that's for you and your lender to determine.

Hope that helps! Let us know what you decide to do and if you find a lender to help your situation. I've had great success with Academy Mortgage here.

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Jared Rine
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Jared Rine
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Replied Apr 19 2023, 17:43

@Naseem Razek..those are FHA guides through and through. In addition, and I don't know if whoever you're working with told you this either - if the new property is not at least 100 miles away from your current primary (in a straight line), this would also disqualify from using FHA. Why are you moving? Or is it to jump on an opportunity?

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Replied Jul 16 2023, 09:37
Quote from @Ryan Thomson:

Hmmm that sounds incorrect or at least there is a different way to approach this. I would consider a couple things:

1. Talk to a different lender that understands what you are trying to do

2. Usually you can take 75% of a lease to go towards your DTI

2. usually you can but this is FHA and if you use FHA to buy when "moving out of another primary," he will be subject to the FHA 100 mile rule (aka a rule where you cannot use rental income offset to qualify for another property so you have to carry both mortgage hit's simultaneously). There are ways around this rule when using FHA if planned for ahead of time (or he can go conventional which is why he mentioned 25% down on multi-family 3-4 unit properties owner occupied.

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Replied Jul 16 2023, 09:45
Quote from @Lawrence Potts:
Quote from @Naseem Razek:
Hello all,
This is my first time posting here so please excuse me if I'm missing anything. I currently have a conventional mortgage 7/6ARM. I am looking to rent that single family home and purchase a multifamily property using FHA loan in order to lower my required down payment. When I purchased the SFH I assumed that lenders would take some percentage of the rental income and apply towards my DTI. Now that I am ready and speaking to lenders I've been told that FHA guidelines will not allow the use of rental income from my currently mortgaged property. That lender is telling me my options are to sell my current property and proceed with FHA or put down 25% on the multi-family. Is this accurate information? What are my options if my goal is to put down as little as possible and house hack?
-Current property was purchased 3 months ago through my credit union as primary residence but they are allowing me to move early.
-Income is just over 10k/month - current mortgage 2900/m including tax and ins, no other debts - multifamily property will be in the neighborhood of 500,000 purchase price

Any advice would be greatly appreciated! Thank you

As mentioned earlier, you'll need a signed lease that shows sufficient income to cover the mortgage. I believe they take a percentage of that gross rental income and apply it towards your DTI. Lenders are all different and I encourage you to speak with multiple lenders, especially those that invest in real estate themselves and know what you are wanting to accomplish with this purchase.

@Jaron Walling I think Naseem is wanting to house hack using the FHA mortgage, so as long as he is intending to occupy it within 60 days of closing for at least 12 months, he can use the FHA mortgage for any property 1-4 units as long as it passes appraisal (not too distressed like you mentioned).

FHA may have issues with you moving on to the next property so soon, they are vary weary of their product being utilized as an investment product (intended for first time home buyers), you may be asked and required to provide an LOE (letter of explanation) as to why you are moving (financial distress, new job, etc), but that's for you and your lender to determine.

Hope that helps! Let us know what you decide to do and if you find a lender to help your situation. I've had great success with Academy Mortgage here.

 Good reply Lawrence,

I see many potential issues that might come up on this move out, rent out, and buy with FHA on 3-4 unit house hack:

- 100 mile FHA rule

- FHA SS self sufficiency rule potentially unless hes in a high rent to value ratio area like mid west, on the west/east coasts its extremely tough to make this rule pencil out when utilizing FHA financing on 3-4 unit properties (this rule is not REQ on 1-2 unit fha properties but still FHA 100 mile rule might still apply if hes moving out of his primary during the purchase of the new subject property or future property.

The solution around the FHA 100 mile rule is move out of your primary residence right now and give it 6 months of time seasoning before you apply to buy your FHA 2-4 unit house hack. In my experience that's the min amount of time in general that an underwriter will not consider the house / property that you're vacating to be a "vacated primary." Recall that the trigger that elicits the FHA 100 mile rule is the fact that you're vacating your primary during your purchase. So to avoid this rule you move out first (solution) till the rule no longer applies to your situation then you engage your purchase and sale agreement (make your offer) or PSA and do your FHA loan after.


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@Naseem Razek

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