My friend has found a deal on a two family in his town in Hull, MA and has it locked up at great price, probably $20k under FMV. He currently lives in a single family with his wife in the same town, but they are planning to rent the single family and house hack the two-family.
He was planning to use the FHA loan for the two family, but he can't have two properties within 100 miles if he is using rental income of one to support the second loan.
Would it work if he didn't include the rental income of his single family and had a cosigner with better income to help qualify for the loan on the two family?
Unlikely; one of the exceptions in owing two FHA homes is purchasing a larger home due to a growing family (kids, aging parents, etc.) Going from a SFH to a duplex will signal to the underwriter (correctly) that his intent is to utilize the FHA home as an opportunity to "house hack." There are other low down payment loan types that may work for him, such as 5% down conventional.
While FHA is "only" 3.5% down payment, there's a 1.75% funding fee, making your cash out of pocket up front 5.25% - ignoring closing costs - whereas a 5% down conventional is cheaper upfront, lower MI, and that MI goes away eventually.
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