*HUGE* "house hacking" mortgage guideline change in pipeline

46 Replies

Home Possible from Freddie Mac has long been my favorite 30YF mortgage product. 95% LTV on a 2-4 unit property you will live in, but no FHA downsides.

Specifically...

  • Conventional alternative to FHA that requires 5% down for up to 4 units.
  • Rental income can be counted towards mortgage-qualifying income @ 75% of value.
  • Not a first time homebuyer program, but cannot currently own other real estate. <--- what's this?! Keep reading and pay close attention!
  • Unlike FHA, PMI drops off once you have the equity. No need to refinance.
  • Stronger offers, compared to FHA.
  • No FHA property standards. Normal Freddie Mac property standards.
  • No FHA "self-sufficiency test" that kills transactions at the last minute.
  • Underwritten and funded in-house, no send-off to an outside Agency for approval.

That's all great, but the problem that frequently came up is historically (and for the next 2 months) you couldn't own other real estate. Ouch. Basically it was only useful if you were just starting out and didn't already own 1 or more homes.

But check THIS out...

Income limit lookup tool: http://www.freddiemac.com/homepossible/eligibility...

You'd be shocked how many census tracts have an income limit of, and I quote, "no income limit." 90% of Oakland, for example. That's where this is a good fit, since if it's a good rental property with good rents, boom those rents will push you over the income limit, if there is one. Check the above link for your area, it's a simple map where you can type the city in and click on parts of the city to find out where your financial success will not disqualify you.

Another thing that historically (and for the next two months) came up was that the loan limits were lower than FHA. Now it's going to be waaay higher, in high cost of living areas like the Bay Area and San Diego, $870k for a duplex and $1.3m for a fourplex!

Almost all the legacy content (blogs, podcasts, etc) pushing FHA loans for folks looking to owner occupy a 2-4 unit property is now obsolete

My former neighborhood Dundee in Omaha has no income limit. The reason is “Low-income tract”.

That seems odd considering it is one of the most popular and expensive inner city areas.

Anyway my wife would never let me move us into a small multi family.

Originally posted by @Anthony Gayden :

My former neighborhood Dundee in Omaha has no income limit. The reason is “Low-income tract”.

That seems odd considering it is one of the most popular and expensive inner city areas.

Anyway my wife would never let me move us into a small multi family.

 They are basing it on data from the 2010 census. We were in the middle of a once-a-century Great Recession/Depression in 2010. So if you're looking at that specific data-set, you get vast swaths of prosperous cities flagged as "low income," since unemployment was so high in 2010.

These opportunities will almost certainly dry up when the 2020 census is done, assuming another once-a-century Great Recession/Depression doesn't happen between now and then. So basically folks have 2 years to take advantage of this.

@Chris Mason

What if your LLC owns properties but you don't hold any in your own name? Could you buy with this loan? I'd love to buy myself a 1.3M fourplex in San Diego.

Originally posted by @Lee Ripma :

@Chris Mason

What if your LLC owns properties but you don't hold any in your own name? Could you buy with this loan? I'd love to buy myself a 1.3M fourplex in San Diego.

People get traditional residential mortgages, LLCs can only get commercial/portfolio/HML generally.

@Chris Mason this would be a great program sounds like than the fha that I’ve been trying to use. Looking to owner occupy a 2-4 unit here in San Diego.
@Chris Mason Thats true. I hold properties in LLCs and have commercial loans on them. Would I be able to use this program to buy a home in my personal name, or wouId they vIew me as ownIng property already?
Originally posted by @Lee Ripma :
@Chris Mason Thats true. I hold properties in LLCs and have commercial loans on them. Would I be able to use this program to buy a home in my personal name, or wouId they vIew me as ownIng property already?

 Read farther down, they are lifting the restriction on owning other property entirely. That was kind of the big point of my OP, I guess I wasn't super clear on that. :)

Originally posted by @Chris C. :

hmmm is "living-in" worth a 3+hr commute....

 Underwriter is going to cank it unless you have some industry-specific reason that a 3 hour commute is the norm. For example firefighters in San Jose and other Bay Area cities have a track record of flying in from the Midwest for their 4 day shifts, and flying back after, so that can fly. If you're a 9-5 M-F W2 guy, and not a remote worker (confirmed in writing unambiguously by your employer's HR people on company letterhead specific to you), no one is going to believe that your true intent is to commute 3 hours each way 5 days a week.

@Chris Mason This is good for the nomad strategy crowd. Currently what I'm doing. My latest purchase in March I had to write a letter explaining why I was buying a house 3 miles away. I live near the airport and the northwest side is where most of the planes approach. My "intent" was to get away from the "noise" but stay in the same area. The letter worked...

@Chris Mason ... that's FREAKIN' AWESOME!

In the past, we used to explain to Nomads that they should buy their multi-family property first (with VA or FHA) since they need to owner occupy to get those. One of the reasons was that it was hard to get an underwriter to understand why a owner occupant would want to move from a nice single family home to live in a duplex, triplex or fourplex. My guess is that they, incorrectly, believed why would someone in the right mind voluntarily go from living in a nice single family home to living in a less nice duplex, triplex or fourplex.

Do you think underwriters are going to be OK with Nomads moving from single family homes to multi-family now? Or, do you think this is only going to be for the unusual situation where someone is renting (but owns other property) or in another multi-family moving to a new multi-family?

I'd be super interested in adding some additional modeling for these new scenarios in our software as well. Exciting times!

Originally posted by @James Orr :

@Chris Mason... that's FREAKIN' AWESOME!

In the past, we used to explain to Nomads that they should buy their multi-family property first (with VA or FHA) since they need to owner occupy to get those. One of the reasons was that it was hard to get an underwriter to understand why a owner occupant would want to move from a nice single family home to live in a duplex, triplex or fourplex. My guess is that they, incorrectly, believed why would someone in the right mind voluntarily go from living in a nice single family home to living in a less nice duplex, triplex or fourplex.

Do you think underwriters are going to be OK with Nomads moving from single family homes to multi-family now? Or, do you think this is only going to be for the unusual situation where someone is renting (but owns other property) or in another multi-family moving to a new multi-family?

I'd be super interested in adding some additional modeling for these new scenarios in our software as well. Exciting times!

 Hi James,

I think that's going to be a big giant "it depends." Will need to identify some property-specific non-financial motive. Airport example above is a great one. Maybe one of the triplex units has 2 full bathrooms and the current SFR has 1.5, but one of the kids is now a teenager and needs her/his bathroom time so they can apply 5 lbs of hairspray (or whatever it is teenagers do these days). Maybe the fourplex is in a better school district. Maybe the duplex actually has a bigger yard for the dog. Following me?

@Chris Mason

Got it, so starting October 29th the other property ownership thing will go away entirely. If I did it RIGHT NOW would the LLC held props count? Or do I have to wait until Oct 29 to use this?

@Tye Ripma Check it out! 

Originally posted by @Lee Ripma :

@Chris Mason

Got it, so starting October 29th the other property ownership thing will go away entirely. If I did it RIGHT NOW would the LLC held props count? Or do I have to wait until Oct 29 to use this?

@Tye Ripma Check it out! 

Current guidelines say you can't have "any ownership interest in any other residential properties" outside of a few exceptions such as inheritance. No exception is carved out for LLCs; presumably you have an "ownership interest" by way of owning the LLC that owns the real estate.

Originally posted by @Daniel S. :

Could this be used as a cash out refi too?

LTV chart isn't out yet so I can only speculate, but typically rate/term refis and purchases have one LTV, and cash out refis another - more restrictive - LTV.

Hi all! I am a newbie and trying to learn quickly. I am itching to buy my first property ever and I am looking to buy multifamily and live there for a year. Should I jump on this now, before the changes go into effect so I can take advantage before other investors seize this opportunity starting then? I am in the Bay Area. Thanks! 

Originally posted by @Yvonne Troya :

Hi all! I am a newbie and trying to learn quickly. I am itching to buy my first property ever and I am looking to buy multifamily and live there for a year. Should I jump on this now, before the changes go into effect so I can take advantage before other investors seize this opportunity starting then? I am in the Bay Area. Thanks! 

 Hi Yvonne,

If you do not currently own real estate, the guideline change will not impact you either way. No reason to rush, and no reason to delay. Do your thing!

Hey @Chris Mason

Awesome info. Thanks for sharing.

With the super conforming limits now being applicable to home possible, the feasibility of using this loan in San Diego increases tenfold.

Now, the “effective date” of October 29th - does this mean that you can potentially begin underwriting for a super conforming home possible now, as long as the close date is on or after 10/30? Or would the entire process need to start after 10/29?

Thanks in advance!

Originally posted by @Kevin Fox :

Hey @Chris Mason

Awesome info. Thanks for sharing.

With the super conforming limits now being applicable to home possible, the feasibility of using this loan in San Diego increases tenfold.

Now, the “effective date” of October 29th - does this mean that you can potentially begin underwriting for a super conforming home possible now, as long as the close date is on or after 10/30? Or would the entire process need to start after 10/29?

Thanks in advance!

The 'summary' of what the guidelines 'will' be are out, but the actual guidelines aren't out yet. Funny, someone just called with this exact question while I was typing that first sentence. Everyone needs to hold your horses until 10/29 when the exact guidelines are both published and in effect. :) For all I know those exact guidelines will contain a "surprise" of the bad sort, like requiring a 760 FICO or 24 months of reserves (I just made those up as an example) if it's a 2-4 unit property, so we really can't in good faith even preapprove until they are out.

Originally posted by @Chris Mason :
Originally posted by @Kevin Fox:

Hey @Chris Mason

Awesome info. Thanks for sharing.

With the super conforming limits now being applicable to home possible, the feasibility of using this loan in San Diego increases tenfold.

Now, the “effective date” of October 29th - does this mean that you can potentially begin underwriting for a super conforming home possible now, as long as the close date is on or after 10/30? Or would the entire process need to start after 10/29?

Thanks in advance!

The 'summary' of what the guidelines 'will' be are out, but the actual guidelines aren't out yet. Funny, someone just called with this exact question while I was typing that first sentence. Everyone needs to hold your horses until 10/29 when the exact guidelines are both published and in effect. :) For all I know those exact guidelines will contain a "surprise" of the bad sort, like requiring a 760 FICO or 24 months of reserves (I just made those up as an example) if it's a 2-4 unit property, so we really can't in good faith even preapprove until they are out.

Figured that would be the case, but you can’t blame me for trying. 

Not sure how you can expect us to hold our horses after you throw this seabiscuit at us lol. 

Wow this is awesome! 

Quick question for you guys. 

I understand all the details are not yet available but I am excited.

What would be a good strategy to ramping up on some investment properties? Would it be possible to house hack in the same city yearly?