I've been soaking up tons of info over the last year and a half and getting my credit scores and savings up to par and finally feel able to pull the trigger on investing. This is my first post to the forum.
I currently have a few savings/checkings account with 3 credit unions (navy federal, merck employee, and american heritage). I checked with 2 of the 3 so far and have found some weird policies with FHA loans for quads. Navy Federal just flat out doesn't offer it(2 units or less). Merck's rates arent the greatest and I have an appointment with a mortgage specialist at American Heritage.
My question is..has anyone experienced this previously? Is there a way around this? I researched FHA and found that you can get a quad with that loan but this is pretty disheartening info i'm learning from my banks.
Also Navy Federal has amazing rates and i would LOVE to use them but i got a closing cost quote and it came in at $22k!?! Isn't that excessive for closing costs? This number didn't include the 3.5% downpayment on a 275K loan.
Any advice is appreciated!
I got one. Owner occupied FHA loan on a 4 unit building.
Finance of America Mortgage, LLC
@Wilson Lee I will look into them. Thank you!
Follow up question: did you have high closing costs like the one quoted to me?
My closing cost for about $3000 on a 125,000 loan amount
I went with New American Funding for my FHA 4-unit. I don't recall my closing costs because the seller covered them but I can look them up later if you're interested in the amount.
@Wilson Lee thanks for that! Thats around what i researched and was estimating 3k for every 100k on the house.
@Logan Allec i will look into New American. And yes if you have time i'd really appreciate a follow up on the costs. It's starting to seem that i should be looking at mortgage brokers for lending rather than a bank/credit union.
Hi @Chanise P. ,
More liberal loan programs will have higher rates/fees, more conservative ones will have better. Owner occupied triplex and fourplex mortgages historically have higher default rates since folks historically budgeted with overly generous assumptions for rental income in mind, paired with FHA loans allowing for very high debt-to-income ratios (>50%... with the rental income counting -- think about that!).
Typically a credit union or bank will have exactly 1 FHA program, 1 conventional program, 1 jumbo program, etc, rather than having multiple of each with slightly different flavors. That's what you're running up against.
@Chanise P. My closing costs on a $420k FHA mortgage on 4 units totaled approximately $19k. Note that this amount includes the upfront mortgage insurance premium (big number), prepaid interest, insurance, a fee for buying into the local water cooperative, etc. PM me and I can give you a copy of the itemized breakout.
You're talking to the wrong banks/lenders. You can absolutely get a FHA mortgage on a 4-unit with 3.5% down with many lenders. Your lender closing costs are not based on the loan amount. If you are paying more than $1500 - $2000 including the appraisal and all lender fees, then you are paying too much. And you don't need a mortgage broker, many correspondent lenders can do this. I'm not licensed in PA, but if you need a referral to a rockstar LO there that can absolutely do a FHA 4-unit and that won't gauge you on fees, PM me and I'll connect you.
Best of luck!
@Logan Allec PM sent. Thanks!
@Zack Karp PM sent Thanks! I placed a large part of my plan for getting started based on the research that i'd done that said this was possible. When my credit union quoted those prices it felt like a kick in the teeth! I'm glad that i was either misquoted or at least have other options.
@Chris Mason Thanks for your response! I expected for a higher interest rate because of the type of property and the assumptions of rental income but never thought i'd see closing costs that high until i moved into commercial investing. It is true that i've found that the credit unions only have the 1/ea system so i'm glad to know that i can now research other resources.
@Zack Karp I'm sure that i don't know the difference on the different entities involved in securing a loan after reading some of these replies or at least I don't have as good a handle on it as I'd previously thought. Conventional loans are done thru banks, cu's, or brokers? Is that right? If i went with a company like those suggested previously would the loan be through them or through a bank and they're more like the middle men? My head is starting to spin a little but I am determined to figure this out and purchase by Q2 of this year!
@Chanise P. I also have an FHA loan on a 4-unit. My suggestion would be to find a company that will shop your (potential) loan around. I used Guaranteed Rate and they were great to work with. I would recommend you look them up and see if they are available in your area!
P.S. My closing costs were around 4% of the purchase price but I received a $3,000 credit from Guaranteed Rate!
PM me if you have any questions.
@Steve DellaPelle Thanks! I'm PMing you now.
There are basically 3 types of mortgage lenders (in the Conventional/FHA/VA/USDA world)...direct, correspondent, and broker.
Direct lenders underwrite directly to Fannie/Freddie and close with their own money. They can however still transfer the loan servicing.
Correspondent means that although the loan is going to Fannie, Freddie, FHA, VA, USDA, the loan still must conform to an investor's guidelines. They usually still underwrite the loan, and they usually close with their own money.
And a broker doesn't underwrite or use their money to close, they are just a middle man.
So just to throw you into a further headspin...banks, credit unions, lenders, brokers can all fall under multiple categories.
For example, let's say lender ABC is direct with Fannie, correspondent with Freddie, and brokers out FHA. That can happen.
The most important thing to do is align yourself with a local rockstar loan officer, check their personal reviews and company reviews, and check their NMLS to make sure they weren't working at jiffy lube 6 months ago.
Upfront mortgage insurance is always a big ticket item in FHA loans. Prepaid escrows, which isnt really a closing cost, but you have to come up with the money always throws people off too. Transfer taxes vary quite a bit throughout the country, and can be very costly.
Originally posted by @Chanise P. :
@Zack Karp That breakdown makes a LOT of sense! It's appreciated.
@Russell Brazil Those were the main line items that moved me from a gut check to an almost ill feeling! I just had no idea that closing costs could fall in that range.
There is an easy way around this. Say your purchase price was going to be $275k. What you want to do is adjust your contract for instance to say $285k purchase price with a $10k seller subsidy for instance. The seller's net stays essentially the same and you would essentially drop your out of pocket expenses by $10k. FHA loans limit your seller subsidy to 6%. The caveat here is you do need to get the property to appraise for that higher amount. I try to structure most of my own purchases with a seller subsidy to reduce my cash to close by a little.
@Russell Brazil Thanks for that trick! I will look into a way to do this on my deal!
@Chanise P. Not sure if anyone mentioned this but did you check if your closing costs also includes the PA transfer tax? I believe it’s 1% of the purchase price in PA paid by buyer and another 1% paid by seller. City of Philly is higher at 2% per party.
One way to try to get closing costs down is to negotiate with the seller to get sellers help. The max on an FHA is 6%. If the seller is willing to do this, that will substantially lower your closing costs. This can be difficult to negotiate in a sellers market.
I'm sure that most sellers will only go for the sellers concession if they are receiving their asking price for the property. I'm pretty sure if you were able to get the ask price down 10-15% that the owner would then balk if you asked for them to front you 6% of the settled on price at closing toward the cost. I think the mentality of the seller may run along the lines of "I just took a lower asking price for my property and now you're asking me to give you money to close the deal? Why should I give you money to close? Why shouldn't that money come to me?"
It's not that what we are trying to work into the deal is wrong, but it just may take a well versed realtor or buyer broker to explain how and why they should accept it. Many buyers have an emotional attachment to the property and an unusually high expectation of price in the first place. But I look forward to getting my first seller to accept a concession to help lower my costs. :)
@Sung Park I'm not sure if that was included in the price quote. I will take another look. Thanks!
@Travis Wylie Thanks. I've heard of sellers assist and will also attempt this strategy!
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