Denver, CO · Member since 2015 · 20 posts · 9 votes
Hello everyone,
I am currently hoping to buy a duplex or triplex in the Denver area within the next 6 months. I was working with a lender who has pre-approved me and told me that I could get a loan on a multifamily for 5% down. I would like to avoid FHA if possible because I will have more than 3.5% to put down, but the lender I was working with told me I'd need at least 15% to get a conventional through her company.
Does anyone know if it's possible to get a 5% down loan on a multifamily for an owner-occupant? I've heard yes and no from various sources. If so, do you have any recommendations for lenders?
Great tip @Jared Bandel, I will be contacting my lender soon. But i am currently buying a 4 unit and looking to occupy one of them and qualifying for an FHA loan. He told me that he can definitely make it happen. But I will inquire about the multi family and see if i can get that instead. That would be great. Thanks for sharing guys, great tips and techniques, that i will be looking to explore. Good luck Jared. @Greg Pond do you put all your cash flow back onto your mortgages until they get to 20% typically and refinance?
This is my second investment property so keep in mind I'm a newbie as well. I do not put all of the cash flow back into the property. I am a big fan of having cash reserves of about $10-$15k for unforeseen expenses and for future upgrades. Once the bank account for that specific property reaches $10-$15k I will then start to put the cash to work by paying down the mortgage. And, yes we will be refinancing to buy another one.
Real Estate Broker · Denver, CO · Member since 2016 · 36 posts · 14 votes
10y
Hi Jared,
Sounds like a great idea. I assume that you are going to occupy one of the units, right? As you may already know, you will get a better rate and terms on your mortgage if you live in one of the units. Below is what a lender explained to me when I posed your question to him.
They will need 15% or 25% of their own funds if they do not occupy one of the units.
With Fannie Mae the maximum loans are:
2 unit = 85%
3-4 unit = 75%
So investors need 15% or 25% down respectively.
Now if they are primary residences, FHA may make the most sense, but you won't necessarily be able to do more than 1 FHA loan.
FHA max LTV's are:
2 unit – 96.5% financing
3-4 unit is also 96.5% but some additional requirements exist.
I would recommend talking to local banks as well. A local bank may have a better option for you. I financed my investment property with First Bank and they were very easy to work with and they portfolio some of their loans: 7/1 ARM, 15-year fixed. There are a ton of fabulous minds on BP that I'm sure will chime in with other great ideas. Hope this helps.
Denver, CO · Member since 2015 · 20 posts · 9 votes
10y
@Greg Pond Thanks for all of the great information. Yes, I plan to live in one of the units and rent the other or others out. My thought process was that if I could find a lender offering 5% down conventional, I would go that route, as I'll have the 5% and won't have to refinance out of the FHA loan to get rid of the PMI once I get to 20% equity. With rates still being really low, I thought it might be nice to not have to refinance to a likely higher rate to get rid of the PMI. My thought process might not be perfect - I'm very new to all of this.
Did you use FHA through FirstBank for your investment property, or were you able to put 15-25% down? Unfortunately I won't be able to put more than about 10% down if I buy this year. I could also be wrong about this, but I don't see the Denver market turning around anytime soon, so I would like to try to buy something as soon as possible.
Real Estate Broker · Denver, CO · Member since 2016 · 36 posts · 14 votes
10y
With respect to my investment property, we put 20% down, so no, we did not do FHA with FirstBank. It is in a 7/1 ARM now that we are going to refi next month into a 15-year. It won't cash flow much, but I don't really care as it is a long-term hold and the rents will eventually catch up to turn cash flow positive. If not, we have enough in cash reserves to carry it for 5-years. Also, I am happy to have the principal write down of almost $1000 per month. This is not a strategy that I would recommend, but did want to share this example with you. Anyway, we can chat more about that if you would like.
As far as FHA goes, it might be a good option for you to get into the property since you don't have 20% to put down. There is an option for you to pay the PMI up front so you wouldn't have to refi in the future. If you are going to hold on to the property for several years, then locking in at a low rate now will pay dividends in the future and the PMI has already been paid for. Basically, they are going to bake it into your rate.
I agree with you about the Denver market. As you know none of us have a crystal ball, but I feel like if you buy and hold, then over the long-term you should be fine. I am telling all of my clients to commit to holding on to a property you buy now for at least 5-10 years. And, commit that you will not sell the property in a down market. If you look back at the crash in 2007-08, people that sold then most likely lost their shirt. If they would have held on, they would be sitting pretty today.
Here is a link to an article I wrote that explains why I am still bullish on the rental market in Denver.
This is what got me, "One of the reasons we are bullish on the housing market for real estate investors is a recent article from The Denver Post. In the article the journalist stated, “The state demography office estimates that Colorado gained 45,300 new households in 2015 but added only 25,000 new housing units. Since the 2007 recession, the states home builders and apartment developers have undershot household formations by 128,000.” The report also mentioned the Zillow rent index, which showed the average rent in Denver in November 2015 was up 9.7 percent to $1,952 per month. Denver ranked third in the rent index by Zillow, which was only behind San Francisco and Portland."
Rental Property Investor · Portland, OR · Member since 2015 · 338 posts · 332 votes
10y
The mortgage broker I've worked with for a while has told me no way can I do 5% down on owner-occupied conventional for a duplex. He said 15% down minimum plus 5% PMI. Which banks loan on 5% @Craig Garrow and @Steven Silva? Did you have a second loan Craig?
In other news, it seems like I'm doing a lot of my mortgage broker's research lately. A couple months ago, I had to give him a reference for a lender that would count only that portion of a HELOC that has been tapped--not the whole amount approved--against DTI for a new loan. Until I sent him the reference, he thought such a loan was non-conforming, but in reality what he thought was Fannie Mae's rule was actually just a lender overlay.
The reason I stick with him though is because he's put in a lot of time for me and hasn't seen a dime so far as a result. But man--why aren't [some?] brokers keeping up with the lending guidelines?
Real Estate Investor · Kalamazoo, MI · Member since 2015 · 120 posts · 37 votes
10y
Great tip @Jared Bandel, I will be contacting my lender soon. But i am currently buying a 4 unit and looking to occupy one of them and qualifying for an FHA loan. He told me that he can definitely make it happen. But I will inquire about the multi family and see if i can get that instead. That would be great. Thanks for sharing guys, great tips and techniques, that i will be looking to explore. Good luck Jared. @Greg Pond do you put all your cash flow back onto your mortgages until they get to 20% typically and refinance?
Great tip @Jared Bandel, I will be contacting my lender soon. But i am currently buying a 4 unit and looking to occupy one of them and qualifying for an FHA loan. He told me that he can definitely make it happen. But I will inquire about the multi family and see if i can get that instead. That would be great. Thanks for sharing guys, great tips and techniques, that i will be looking to explore. Good luck Jared. @Greg Pond do you put all your cash flow back onto your mortgages until they get to 20% typically and refinance?
This is my second investment property so keep in mind I'm a newbie as well. I do not put all of the cash flow back into the property. I am a big fan of having cash reserves of about $10-$15k for unforeseen expenses and for future upgrades. Once the bank account for that specific property reaches $10-$15k I will then start to put the cash to work by paying down the mortgage. And, yes we will be refinancing to buy another one.
Wondering if you were able to finance with an FHA or conventional loan for 3.5% or 5% down? Have these same questions to try to purchase a duplex in Denver now.
Hey Guys, I'm currently in a similar situation. Is there a way to do an FHA in say a 3-plex if all units are currently occupied? I believe FHA requires 1 year occupancy minimum? @Greg Pond@Steven Silva@Craig Garrow
Rental Property Investor · Denver, CO · Member since 2017 · 51 posts · 39 votes
7y
We bought a Denver duplex we occupy a unit of this past October with 5% down, conventional with a local bank. You may want to look into/ask your lender about the Home Possible program (our neighborhood had no income cap), which I think cut down the PMI a bit.
Denver, CO · Member since 2015 · 20 posts · 9 votes
7y
I was able to buy a single family with 5% down, but that was the back up plan after not being able to compete with people buying duplexes/tris/quads with cash a few years back. My lender was going to let me do 5% on all of the duplexes I made offers on, but I'm not sure if they still would or not. They were absolutely great though, walking me through each step and helping me with numbers from what I expected in rent for each of the places I told them I had made an offer on. Lizzie is right - check out local banks in the area around Denver and the Greenwood Village areas and tell them you are hoping to use the Home Possible 5% down conventional product!
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Three year old threads shouldn't be relied upon for information.
As of about a month ago, the 95% LTV Conventional program that allows for 2-4 units now caps your income at 80% of the median income for the census tract. For most folks, at least in my market, that effectively means that if you make enough to qualify for the mortgage, you make too much for the census tract.
FHA is still around at 96.5% LTV. And FHA rates through any independent mortgage broker in the wholesale channel are rock bottom at the moment. If you add the rate of the mortgage insurance to the lower than average FHA interest rate, you wind up with a combined "effective" interest rate very similar to where conventional 20% down 2-4 unit owner occ rates are at. If the mortgage insurance is at 0.85%, but the rate is 0.75% or 1% lower than conventional, then you really aren't "wasting" any more money on mortgage insurance than you'd otherwise have "wasted" on interest anyways.
As Chris mentioned, FHA is also a great option, but I know when I ran the numbers from Home Possible vs. FHA that my payments were going to be significantly less going the Home Possible route.
Good luck! Keep us posted on what you end up doing.
Rental Property Investor · Kansas City, KS · Member since 2016 · 114 posts · 57 votes
7y
@Jared Bandel Hey buddy, I was in your same predicament! You need to go through a local bank or credit union, their rates and percentage down are more favorable ! A mortgage broker or a big bank will tell you anywhere from 15-25% down if you want to occupy. Best of luck to you my man!
As Chris mentioned, FHA is also a great option, but I know when I ran the numbers from Home Possible vs. FHA that my payments were going to be significantly less going the Home Possible route.
Good luck! Keep us posted on what you end up doing.
FHA should have a lower total PITI than Home Possible due to FHA having rock bottom rates (federally insured, super safe for the lender), which will offset the mortgage insurance.
Note that since consumers do not "expect" a killer rate with 3.5% down, many banks juice up the profit margins on FHA.
@chrismason Your input is really helpful. I think your comment about the 95%LTV Conventional program is the same with regards to the Home possible program-- the income cap means you don't qualify for cost of properties in Denver proper. We looked at qualifying for Home Possible with just one of our incomes (not combined household) and the max amount was half of what properties cost here.
@LizzieCarver What neighborhoods in Denver have no income cap? I looked at the map and couldn't find any!
Denver locals-- any suggestions for recommended banks to look at a conventional loan for a duplex ($500k) that would accept 5%down? We may still go for the FHA loan (with 3.5% down), but for the offer would want to have a conventional loan letter at least.
Real Estate Agent · Erie, CO · Member since 2014 · 1k+ posts · 512 votes
7y
@Leah Brooke Feel free to send me a message if you want some recs for lenders that can do the 5% down easily. @Clint Jones and his wife bought their duplex last year using homepossible and it was in a non-income restricted area. The maps can be a bit of a pain, but just start inputting the addresses of the multiplexes you're researching as they come up and see what the results are for the restrictions. If you do plan to use FHA as a backup loan on your offers be sure that your offer accounts for that. Just because you want to switch doesn't mean you can if the seller hasn't agreed to it.
Investor · Denver, CO · Member since 2016 · 6 posts · 1 vote
7y
@Leah Brooke@Dan Mackin Our lender actually found an exclusion rule with the Home Possible loan specifically for Denver County properties at the time we were looking (March 2018). At that time there was no income limit for any properties located in Denver County, regardless of what the income limit showed on the Home Possible map. He said that this exclusion can change at any time. It would be best to contact a lender and ask them about that exclusion rule and if it still applies to Denver County (or anywhere you may be looking).
Real Estate Agent · Denver, CO · Member since 2015 · 1k+ posts · 858 votes
7y
According to a recent conversation with @Joe Massey, he said the recent Freddie updates (I think July 2019), effectively killed the Home Possible program in Denver. As @Chris Mason said, if you make enough to qualify for the mortgage, then you'll be above the income limits. Joe also said rental income from the other unit will count towards your income! That will definitely put you over.