Has anyone used an FHA Duplex/Multifamily loan?

Question

Hey All,

I am a first time home-buyer and I'm looking to purchase a Multifamily home/Duplex, live in one and rent out the other one to begin my rental real estate empire. I was wondering if anyone has went this route and took advantage of this loan. I would like to know the highs and lows of this loan and personal experience with it.

Ive done some research, and some say that this type of loan requires you to already have a renter in place and a lease signed? Is this true?

Thank you!

James

Ashley Pimsner · Answer

If  you are a newbie looking to build your real estate empire then buying a multi unit with an FHA loan is a best way to start/ house hack. The loan only requires 3.5% down and if you can qualify for loan based on your dti's ( debt to income ) ratio then there is no need to have renters in place. Live in unit for two years and then buy another multi unit and owner occupy the new property, rent out your old unit, which ideally gives you positive cash flow each month. You can then hold first multi unit for 3 more years and sell it for no capital gain up to 250k for single, or 500k if married. If you decide to keep first unit longer then when you goto sell you could do a 1031 exchange to defer taxes. This is a great way to start. Use BP calculator to make sure multi unit cash flows when you move out. Good luck!

Account Closed · Answer

This is how I purchased my first invetment property. It was a four plex and I had one unit and rent the other three out. As Ashley stated above the only requirement was 3.5% down and proper DTI ratio. I was not required to have a renter in place and maybe this was becasue of my DTI, but that never came up doing the loan process at all. I don't know of any reason other than DTI ratio that a renter in place would be required but I could be wrong about that.

I advise all of my clients to purchase a rental propety this way if they are in a position to do so, as it is very effective way to start out with much less capital than the traditional method.

Zach Davis · Answer

FHA is a decent program if the numbers work but don't there are a few things to be aware of. 3.5%-5% down gets you a market rate mortgage but you have mortgage insurance, which is now for the life of the loan. The good news is that they just reduced premium amounts, its now .0085 of the loan amount as the yearly premium. Just make sure that its added in when you run the numbers. They will also take somewhat longer to close, cost marginally more in closing costs, and the property has to meet HUD requirements.

Duplexes are just like SFH except that you can claim the other side as income, with 15%-25% (I can't recall which) removed as a vacancy rate. You don't have to use the income if your personal finances are in order but you can if you are trying to purchase a property that you wouldn't otherwise be able to afford. Triplexes and 4-Plexes are the same except for one weird rule; 85% of current rents (all of the units) have to be able to cover the monthly PITI payment. Its not really a rule that will matter in many purchases but I did have one where the rents were so far under market that it would have ended up requiring a 15% down payment since the total loan amount was restricted by that rule.

Also, you can only have one FHA mortgage at a time, there are some instances where you can get another but they don't apply to most people. Good luck!

Tiesha M. · Answer

Can someone clarify this for me please? Is it an FHA requirement that if you purchase a home with a loan from them, you have to live in the home 2 years or is it just that you can't get another FHA loan from them for 2 years? I think if you get a loan thru Fannie Mae as an owner occupant they require you to live in the home 1 year.

James Post · Answer

Kevin, was the FHA Loan just a normal loan or was it called something else. Just asking because from what I read on an FHA Duplex/MultiUnit loan stated they would give you more of a loan due to the reasoning you will have more income because of the other unit to rent. Just wanted to know if there actually are two different types of FHA loans for multi families.

James Post · Answer

Excellent. I hardy have any debt and my bills monthly are under $500.00 a month so hopefully I should follow suite. Thank you so much for the info Kev!

Account Closed · Answer

Mine was just a standard FHA loan and has far as I know there are not different names for properties between 1-4 units. The underwriting process my change slightly with the consideration of the extra rental income, so that my help with the amount of loan you are able to get. But as far as the type of loan it really is just a standard FHA loan that you are looking for.

Account Closed · Answer

That should work great for you then. Good luck!

Kashun D. · Answer

I do know that your spouse can acquire another FHA loan if you have one already. I'm not sure if they changed any rules around that, but definitely check. This way you can have two FHA backed properties with little capital upfront.

Marlon Wilson · Answer

Hi @James Post!

Welcome to Biggerpockets! All The best!

Has anyone used an FHA Duplex/Multifamily loan?

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