< 20% Down on an Owner Occupy Triplex

7 Replies

Hi all - I'm currently under contract on a triplex in Long Beach, CA for $625K and am running into some financing issues. I originally planned to do an FHA loan on the property but that program requires 75% of the market rents to cover all of the P&I which they currently will not unless I put >20% down. I am a young professional and currently can't afford that but might be able to swing 10-15%. Time to get creative. Would love to hear any suggestions that you all might have. Thanks in advance!

Can you qualify for high enough loan with only your income? If you can (and they weren't using rents as part of your income) sounds like you might want to speak to a different bank...

Originally posted by @Chad Gaither :

Hi all - I'm currently under contract on a triplex in Long Beach, CA for $625K and am running into some financing issues. I originally planned to do an FHA loan on the property but that program requires 75% of the market rents to cover all of the P&I which they currently will not unless I put >20% down. I am a young professional and currently can't afford that but might be able to swing 10-15%. Time to get creative. Would love to hear any suggestions that you all might have. Thanks in advance!

HI Chad,

Your main options would be FHA and Conventional or as low as 0% down with VA financing (if you're a veteran).

There is a niche conventional program called home possible that will allow you to purchase your triplex with a max loan amount up to 656,350 (you'll be under this with 5% down).

FHA is available but since you're in Long beach, CA you'll probably not be able to do 3.5% down FHA with out putting more money in especially depending on the area because:

- FHA requires the self sufficiency rule on 3-4 unit properties which means 75% of the gross rents of all 3 units (includes your unit you'll be living in) will be required to be greater than the total monthly payment on that property which is commonly referred to as PITI (principal/interest/taxes/insurance). This is often very difficult for areas that rent for less than .90% rent to price ratio, this means your 625k triplex would need to have gross rents of 5625 (1875 rent per unit). The rental income used is the lower of current rents for the tenants in the building currently or market value as determined by the appraiser so often times the current rents are lower so you will wish your building came vacant lol

The conv HP program does not have any rental income requirements which therefore makes it superior to use on the house hacking strategy.

HP Conventional requires the borrower to not own any real estate interest at the time of closing on either individually or jointly (partnerships).

Hope that helps, let me know if you have any questions.

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453) and TN (#345453)

@Albert Bui Thanks so much for the break down. Extremely helpful! I did see that home possible program so I sent over to my broker to see if we can participate. Property is in a great location and there's value add and rent increase opportunities with this one so really hoping to lock it down.

@Matt K.   I qualify for a little over $600K but I could also bring in my soon to be fiance (would like to wait until officially married but an option) and also could get some private money from friends and family.

Thank you both!

Originally posted by @Chad Gaither :

@Albert Bui Thanks so much for the break down. Extremely helpful! I did see that home possible program so I sent over to my broker to see if we can participate. Property is in a great location and there's value add and rent increase opportunities with this one so really hoping to lock it down.

@Matt K.   I qualify for a little over $600K but I could also bring in my soon to be fiance (would like to wait until officially married but an option) and also could get some private money from friends and family.

Thank you both!

 You dont need private money on a primary residence transaction you can receive those funds as a gift by merely signing and dating a gift letter and have your relatives write you a check from their account.

As for the home possible program, its a great program. Just make sure you're not in an area where there are income limits because not all of Long Beach is in a "no income limit," area and usually the no income limit areas are usually rougher like around cherry 7th, the northside of Long beach near paramount, bellflower, compton, or the west side of LB under the 405.

The main areas with income limits of 90k are bixby knolls, belmont shores area and coastal areas of downtown which are more affluent, the signal hill area, and eastern LB near the Cal state LB.

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453) and TN (#345453)

@Albert Bui good to know. This property is close to 6th and walnut so previously a rougher area that is transitioning so hopefully I'm still in the no income limit zone. otherwise maybe we see if my soon to be fiance can buy it instead of me. 

@Chad Gaither If Home Possible doesn't work, you do have the option of a portfolio lender that will go with 10% down, no mortgage interest - but the rates are not going to be as good as conventional lending. PM if you need more info. 

Jerry Padilla, Lender in NY (#NMLS 1084877)

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