2-4 unit with 3-4% down with LPMI

12 Replies

Wife and I decided we want to ‘house hack’ (owner-occupied multiunit) our first home purchase. We have 800 FICOs combined gross income $150k. We know very, very little about RE but have read a few forums, the Ultimate beginner’s guide, listened to a few podcasts. We’re looking to relocate to Atlanta area somewhere between Atlanta and Columbus, GA within next year. We plan to rent initially with intent to buy when the right opportunity comes along.

How far in advance should we get pre-approved by lender? It's possible our income could grow substantially before needing the loan and so would it then be advantageous to wait? If our income is higher would the parameters of the loan be more advantageous?

Are we looking for Bigfoot here?…seeking lender for a 2-4 unit owner-occupied pre-approved for $250k 3-4% down lender-paid or no mortgage insurance. 

@Aaron Briggs - welcome to BP & congrats on having a solid plan. In my experience, pre-approvals are only valid for a short time period (1-3 months). It wouldn't hurt to start the process of interviewing several banks, potentially have them run your application so you have a better understanding of what you truly can acquire. Also, don't discount the option to owner finance if you can find that opportunity. 

Purchasing Our First Duplex: https://www.biggerpockets.com/blogs/8160/50653-pur...

Originally posted by @Aaron Briggs :

Wife and I decided we want to ‘house hack’ (owner-occupied multiunit) our first home purchase. We have 800 FICOs combined gross income $150k. We know very, very little about RE but have read a few forums, the Ultimate beginner’s guide, listened to a few podcasts. We’re looking to relocate to Atlanta area somewhere between Atlanta and Columbus, GA within next year. We plan to rent initially with intent to buy when the right opportunity comes along.

How far in advance should we get pre-approved by lender? It's possible our income could grow substantially before needing the loan and so would it then be advantageous to wait? If our income is higher would the parameters of the loan be more advantageous?

Are we looking for Bigfoot here?…seeking lender for a 2-4 unit owner-occupied pre-approved for $250k 3-4% down lender-paid or no mortgage insurance. 

 There will be mortgage insurance if you put less than 20% down, period. LPMI is just baking that cost into your interest rate pricing.

I have a somewhat similar question.  I'm trying to house hack in my area and find my first deal. 

Is it possible to get less than 20% down on a 2-4 unit? I was scouting a triplex today but the few local lenders I spoke with said the down payment requirement was 25% plus 6 months reserves. I assume they were pricing it conventional but when I asked about FHA, they said it was the same requirement as well. I was under the impression that FHA owner occupied 2-4 units would have lower down payment stipulations.

Originally posted by @Michelle Finke :

I have a somewhat similar question.  I'm trying to house hack in my area and find my first deal. 

Is it possible to get less than 20% down on a 2-4 unit? I was scouting a triplex today but the few local lenders I spoke with said the down payment requirement was 25% plus 6 months reserves. I assume they were pricing it conventional but when I asked about FHA, they said it was the same requirement as well. I was under the impression that FHA owner occupied 2-4 units would have lower down payment stipulations.

Yes it does Michelle, FHA is 3.5% down payment for up to 4 units and conventional there is a program as well that allows for 5% down payment as well. The normal guidelines for conventional financing do require 25% down payment so it just depends if the lender you're going to has access or know how to do the correct programs for your house hacking strategy.

The conventional program with 5% down is best when fico scores are 720 or higher, while FHA, the later, is best for scenarios where there is more hair on the deal (credit issues, lower scores, income in consistency, etc,etc).

Hope that helps.

@Chris Mason PMI baked into interest rate is advantageous because it is deductable and thus can reduce costs?

Originally posted by @Aaron Briggs:

 There will be mortgage insurance if you put less than 20% down, period. LPMI is just baking that cost into your interest rate pricing.

It amortizes it over the course of the loan which is lower payment for the first few years, which is great for helping you to compound your returns. I just got a 5% down, LPMI @ 4.125% on a house hack (SFR w/ rent-by-the-room) using a HomeReady mortgage from Fannie Mae.

If I had to pay the PMI myself my effective rate would be substantially higher until I hit 20% equity, the overall rate is so low that it ends up being a substantially better option because even with the slight uptick in my mortgage rate for the life of the loan I can invest that saved income at far higher rates than the resulting difference in interest rates.

Only program I know of with LPMI & 5% down for a MFR would be Freddie's Home Possible mortgage - like the homeready mortgage it only works if the property is in a specific area (or you have very low income). HomeReady would be 15% down for a 2 unit, 25% for 3-4.

@Jim S. I didn't realize that lenders made meaningful distinction between SFR and live-in 2-4 plexes. Thank you.

Originally posted by @Aaron Briggs :

@Jim S. I didn't realize that lenders made meaningful distinction between SFR and live-in 2-4 plexes. Thank you.

There certainly is, it impacts which insurance products you can get as well.

I'd recommend you start talking with a mortgage broker who can help give you a rundown of what products might be a good fit for your situation. 

For your own reading it might help to look at the guidelines from Fannie/Freddie, one page I have bookmarked is the Fannie Mae lending criteria matrix: https://www.fanniemae.com/content/eligibility_info...

@Jay Helms @Chris Mason @Jim S. I did find a 5% down for a 3-4 unit owner occupied at 4.44% LPMI 30yr fixed Vs. 3% down for 1-2 unit  owner occupied at 4.55% LPMI 30yr fixed. 

Opinions anybody? Better deals out there? 

I'd say that's a steal - don't think you'll find much better than that @Aaron Briggs .

Originally posted by @Aaron Briggs :

@Jim S. I didn't realize that lenders made meaningful distinction between SFR and live-in 2-4 plexes. Thank you.

Afaik, they're not required to, it's just that certain "loan products" make that distinction.

Originally posted by @Michelle Finke :

I have a somewhat similar question.  I'm trying to house hack in my area and find my first deal. 

Is it possible to get less than 20% down on a 2-4 unit? I was scouting a triplex today but the few local lenders I spoke with said the down payment requirement was 25% plus 6 months reserves. I assume they were pricing it conventional but when I asked about FHA, they said it was the same requirement as well. I was under the impression that FHA owner occupied 2-4 units would have lower down payment stipulations.

Your last sentence is correct! So, ask again, or ask other Lenders. Someone has been feeding you porky pies, or, you might have spoken to a Lender who has their own overlay rules. 

I suggest: ask them if they're an FHA-approved Lender first, rather than as an afterthought, and you'll quickly know if they're on the same page as you. All the best. Welcome to BP...

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