Hey BP! My name is Cade Ruthardt and I'm fairly new to the community, so far I love it! I had a few questions about qualifying for an FHA loan. My plan is to do a little house hacking and get an FHA loan for a duplex, triplex, or fourplex, and rent out the unoccupied unit to cover expenses. My question is would I qualify, or how do I find out if I qualify for an FHA loan?
I currently have less than 30k income, and little cash assets. I'm just curious on the basic qualifications and steps to applying for an FHA loan.
P.S. This is going to be my first housing purchase, so I have no experience and would love all the advice I could get.
@Cade Ruthardt , most people will qualify for an FHA loan assuming you have okay credit, steady employment, and not too much other debt.
First thing you need to do is talk to someone at a local bank and get prequalified.
Focus on 3 or 4-unit properties, duplexes are hard to make work as pure investment properties.
You should be able to qualify no problem - the only major stipulation is that you occupy one of the units. With regards to your income- you will only qualify up to a specific amount but they will also take into consideration many other factors such as current expenses, any debt, student loans, credit score and things of that nature.
I personally just went through the process a month ago- if you have any other questions feel free to reach out. To Jaysen's point about duplex's, tri's and quad's he's not wrong, it is easier to make the numbers work with more units but it usually comes at a higher price tag- one which you may not qualify for.
I was able to find a great deal on a duplex I picked up for 185k with 6k back at closing. My total monthly expenses (P&I, home insurance, PMI insurance- required with FHA and taxes) come out to 1350 a month and I have 1250 of rental income (top unit rented) while living in the bottom unit. My point is don't necessarily discount duplex's as the the above example will be a decent cash flow once I move out.
@Michael Doherty So from my understanding, your debt, including the possible mortgage, insurance, and taxes has to be less than 45% of your income. Since you have to add the mortgage into the debt, would you be able to add the possible rent income to the income column to be able to increase the 45%?
@Cade Ruthardt the loan originator will count 70% of rental income towards your debt to income.
I know one of the stipulations is that the owner live on the premises for a required period of time. Is it not enough that the building is in the owner's name? Is the bank actually sending someone out to confirm it is your prime residence? What if you travel for work 80% of the time & are rarely home & have a house sitter?
@Auria Moore So it is an FHA guideline that you 'live' there. From my experience no, they are not sending anyone to your house to check in. However, if for the off chance they do, you could be in trouble. My suggestion would be to just have your mail sent there to make it appear like you live there. But you are only going to be eligible for one FHA loan at a time. Meaning you cant use FHA for one house, not live there and have a second FHA mortgage.
@Michael Doherty how would you go about dropping your FHA Loan on your home that doesn't have a lot of equity? Can you just Refinance?
@Raph Graham yes, exactly. I would try to refinance after about a year or so. I have heard conflicting statements regarding dropping PMI insurance however. I have read that after 22% Equity it automatically drops off and I have also read and heard it lasts for the life of the loan. If you have any more context to this I would appreciate it.
If you can find a property with tenants the bank will count 75% of the income from the units except the one you will occupy towards you qualifying for the loan. Its an awesome way to leverage your buying power. FHA loans with PMI will always have the fee for the life of the loan, you will need to refinance to get rid or it. A conventional loan with less than 20% down will also require mortgage insurance but that will drop off upon reaching 20% equity without a refi. FHA will do 1-4 units with as little as 3.5% down, typically a conventional will only do up to a duplex, however there is a program by fanie mae called home possible for first time buyers that will do up to a 4 unit on a conventional loan with 10% down and requires a pretty good fico score. This is the program that I just used to buy a 4 unit.