Im looking for a multi-family property and am trying to find an affordable option to purchase. After speaking with some investor friends of mine i received the advice to "Max Out" the FHA Loan because its the only shot ill have at getting a property with such little cash down. basically i could look for a Duplex at less than 300k and never have to worry about vacancies OR purchase a larger fourplex for 500k and increase the cash flow margin but have a much larger mortgage.
How wise is it to use my FHA loan for the maximum amount?
@Ronald Green - I would be more concerned about the performance of the property vs maxing out the loan. But if you can buy a bigger property with better cash flow then yes, I would try and go for the max amount. But if a smoking hot deal came up and it was only a 2 unit, I wouldn't pass on it.
@brieschmidt thanks for the input! Cash flow is the main goal so ill keep that in mind
@Ronald Green Also, something to note... If you're looking at 3-4 family properties with FHA financing, you have to qualify for the loan and so does the property. The property must pass the self-sufficiency test, whereby 75% of the appraised monthly rental income must be greater than the monthly payments on the house (principal, interest, insurance, taxes).
For the property I'm purchasing now, the monthly payments would be around 2,500. The income for the studio, 1 bedroom, and 2 bedroom units were appraised at 850, 1000, and 1200 respectively (or 3050/month). 3050 x 75% = 2,288. In this case, the payments were greater than 75% of the rental income (i.e. It fails).
@Dan Rivera , I was under the impression (as I am currently exploring financing options much like @Ronald Green ) that with FHA financing, 75% of the rental income is considered and taken into account when applying for FHA.
Are you saying that if 75% of a properties rental income does not exceed the monthly payments, then it will not qualify for FHA financing?
To clarify, I have spoken with two banks that (at least to my understanding) stated they will consider up to 75% of the lease income when applying for FHA financing, albeit with some further requirements.
I greatly appreciate any clarification if my current understanding is incorrect.
I knew the properties had to pass certain safety concerns but i didn't know the 75% income ratio.
Ill make sure the math is right before putting down an offer.
The property I'm look at right now is a 4plex renting at 600, 700, 700, 775.
Payments according to my math should be around 1900-2050 depending on taxes and fees. so i think I'm cutting it close.
Don't forget with fha you will have to live in one of those unit for a minimum of a year, so it will only be 3 of those rental incomes
I choose the 600 ;)