Have non-occupant co borrowers as friends and low down payment

[Cathy Li]

Hi BP,

I am looking to buy a multifamily with two friends in San Diego. Have to get more people on it since the high price in SD. Here is our situation 

Friend 1: Main Borrower. No Primary residence so this multifamily will be his primary residence. Steady income with 41k per year. 

Friend 2: Non-occupant borrowers 1. 100k income. Just bought a primary residence in May. House hacking and have a cash flow of 400 per month.  

Me: Non-occupant borrowers 2: 120k income. Bought a primary residence in June. Housing hacking and have a negative cash flow of 400 per month.

All borrowers have no debt except mortgages and great credit (780+). Checked FHA and need a 25% downpayment. Freddie Mac needs a 15% downpayment. Wondering if there is a way to put less money down like 5%.

The goal is to get into multifamily and house hack but if it doesn't work, is it a good idea to get into an SFR or wait in order to get in multifamily?

[Dan H.]

Quote from @Cathy Li:

Quote from @Zach Wain:

Hi Cathy,

FHA should be 3.5% regardless of a 1-4 unit home as long as its a primary residence. A Non occuyping borrower for a FHA loan must be considered a family member for the low down payment option. If there is no family relation, than the 25% down rule comes into play, which hurts. Maybe 1 person buys the home as a primary and using the 2nd unit rental income to help qualify income wise? All 3 people can be on title of the home an owners, but only 1 person would be on the loan.

FHA 3.5% is the hands down winner when buying a 2-4 unit property and 1 unit will be occupied as a primary residence. FHA also allows for higher debt to income ratios than conventional, so I would keep exploring that. Conventional will be 15% down min for a duplex regardless of occupying the home or not

 Hey Zach,

Thanks for the response. Agree it's better to use FHA. Might need to see if using the 2nd unit rental income can qualify for multifamily with California prices.

 In addition to the criteria indicated by @Zach Wain, FHA has sustainable requirements for triplexes and quads which in San Diego pretty much means FHA loan is virtually only possible for SFR or duplex properties (triplexes and quads virtually never meet the sustainability requirement - I use virtually because I did acquire a quad 1.5 years ago that met FHA sustainability requirement).

Good luck