Buying Duplex - How to avoid PMI

12 Replies

Hello,

Currently in the market for a 2, 3, or 4 unit property - this will be my first home and I intend to owner-occupy one of the units and rent out the rest. I had just assumed that FHA (or 203k) would be the only way to go, however I have noticed other options. I am looking for a loan that meets the following criteria:

  • Less than 10% down
  • Can be used on a 2, 3, 4 plex
  • Owner occupied property
  • No Mortgage Insurance (PMI/MIP)

FHA loans seem to meet all of these criteria, though MIP is required - this can add quite a bit to the cost, just looking for other options. If none exist, my plan would be to get a FHA loan and refinance to a conventional loan after it reached 80% LTV. Suggestions?

Thanks everyone!

Originally posted by @Mark H. :

Hello,

Currently in the market for a 2, 3, or 4 unit property - this will be my first home and I intend to owner-occupy one of the units and rent out the rest. I had just assumed that FHA (or 203k) would be the only way to go, however I have noticed other options. I am looking for a loan that meets the following criteria:

  • Less than 10% down
  • Can be used on a 2, 3, 4 plex
  • Owner occupied property
  • No Mortgage Insurance (PMI/MIP)

FHA loans seem to meet all of these criteria, though MIP is required - this can add quite a bit to the cost, just looking for other options. If none exist, my plan would be to get a FHA loan and refinance to a conventional loan after it reached 80% LTV. Suggestions?

Thanks everyone!

That's correct, with an FHA loan you are able to put down as low as 3.5% but the draw back is having that monthly PMI. I've talked to a broker about this strategy for my future investments and he agrees that using a low down payment FHA loan and live in that property for 1 year then refinance it to a conventional loan so that you can use an FHA loan to buy another property. Hope that helps.

@Ricardo Cristobal @Mark H.

You can purchase another property using FHA after refinancing your current place into a conventional loan. However, there is a very big caveat to that: rental income from the vacating home cannot be used as effective income on the new primary residence unless the new home is more than 100 miles away.

@Ricardo Cristobal

Thanks for the response! In general, do you know which fees are associated with a FHA>Conventional refinance? I am just wondering if there are exorbitant fees that would make it a bad decision in the long run.

@Michael Cohen

That should not be a problem...but that is pretty good tip I've never seen before. Thanks!

Originally posted by @Michael Cohen :

@Ricardo Cristobal @Mark H.

You can purchase another property using FHA after refinancing your current place into a conventional loan. However, there is a very big caveat to that: rental income from the vacating home cannot be used as effective income on the new primary residence unless the new home is more than 100 miles away.

 Michael Cohen: Any idea if state lines impact this at all?

Originally posted by @Michael Cohen :

@Ricardo Cristobal @Mark H.

You can purchase another property using FHA after refinancing your current place into a conventional loan. However, there is a very big caveat to that: rental income from the vacating home cannot be used as effective income on the new primary residence unless the new home is more than 100 miles away.

 From what I was told, If you have less than 2 years of land lording the new lender may not use all the income coming from your previous rental property, only 75% to be precise. After having a couple of years land lording, The lenders will come and see that your income from your rental properties will be seen as 100% gross income. 

Originally posted by @Ricardo Cristobal :
Originally posted by @Michael Cohen:

@Ricardo Cristobal @Mark H.

You can purchase another property using FHA after refinancing your current place into a conventional loan. However, there is a very big caveat to that: rental income from the vacating home cannot be used as effective income on the new primary residence unless the new home is more than 100 miles away.

 From what I was told, If you have less than 2 years of land lording the new lender may not use all the income coming from your previous rental property, only 75% to be precise. After having a couple of years land lording, The lenders will come and see that your income from your rental properties will be seen as 100% gross income. 

 The 2 year thing is an overlay from your bank. You can find lenders that will use rental income from day 1.

The use of only 75% of income it to account for maintenance, unexpected vacancies, etc. That isn't restricted to any time frame, they always use 75% and that's not him overlay. That's a Fannie/Freddie and FHA guideline.

Originally posted by @Nicholas Scatton :
Originally posted by @Ricardo Cristobal:
Originally posted by @Michael Cohen:

@Ricardo Cristobal @Mark H.

You can purchase another property using FHA after refinancing your current place into a conventional loan. However, there is a very big caveat to that: rental income from the vacating home cannot be used as effective income on the new primary residence unless the new home is more than 100 miles away.

 From what I was told, If you have less than 2 years of land lording the new lender may not use all the income coming from your previous rental property, only 75% to be precise. After having a couple of years land lording, The lenders will come and see that your income from your rental properties will be seen as 100% gross income. 

 The 2 year thing is an overlay from your bank. You can find lenders that will use rental income from day 1.

 Thanks for the tip, I guess you really do have to Inquire from different lenders.