Hi everyone, so I am new to real estate investing and am trying to get my first investment property. I am a real estate agent in MN but have only been doing that since August of 2018 so I am still learning a lot about how the industry works! My main goal right now is to owner occupy a duplex-fourplex and put down 3-5% through an FHA loan and avoid the whopping 20% that most investment properties require. My lender is telling me that this is no longer an option as of Jan 2019 and you must put down 20% for all FHA loans pertaining to any multifamily property, can anyone confirm or deny this? Thanks in advance!

Justin Homer

@Justin Homer I would reach out to @tim swierczek

@Justin Homer 20% down for any multi is not the case. There are 5% conventional and 3.5% fha options. I’d look into the 5% conventional for your first.

@Tim Swierczek

Thanks for the replies. I will reach out to Tim!

@Justin Homer The other lender is definately not correct. You can get a 3.5% FHA duplex-4plex. The only thing I can think of is your lender may have recently had a buyer who wanted to have a cosigner on a duplex and that is not allowed at 3.5%, it requries 25% down (not 20%). Not sure where this person is getting their information. FHA's last guideline press release was put out a few days ago and has to do with 3rd party reports. They had another guideline release in November of 2018 regarding AirBnB style short term rentals, but this did not impact down payments. Feel free to PM me we can chat.

It also highly depends on your finances. My lender will do a 3.5% fha for a house within a specific price range. Once I go outside that price range my debt to income increases and they require a 20% down payment. Call around, I went through 10 lenders before I found my gal :)

@Justin Homer I agree with Jordan, I would recommend you look into low money down conventional loans as well. My first property was low

money down fha, worked well but pmi was high. My second property I did 10% down conventional. What was great about low money down convention is all I need to do was appraise for under 78% loan value to remove pmi. With my fha loan I would have had to refinance to remove pmi (I ended up selling property).

as long as the numbers work and you qualify for a low down loan then I would suggest finding 4 or more doors.. meaning a quadplex or commercial MF property. no better way to learn then jump in

My guess is it might be that you've only been on "the job" for a few months, taking you out of the 2 year avg income range. Find a new lender. It's still going to be tough to do, but he straight up lied to you saying that the loan pgm isn't available anymore, when in truth you probably don't qualify. But he should shoot straight with you instead of making it seem it's not available. Also, make sure you understood him correctly.

Originally posted by @Justin Homer :

Hi everyone, so I am new to real estate investing and am trying to get my first investment property. I am a real estate agent in MN but have only been doing that since August of 2018 so I am still learning a lot about how the industry works! My main goal right now is to owner occupy a duplex-fourplex and put down 3-5% through an FHA loan and avoid the whopping 20% that most investment properties require. My lender is telling me that this is no longer an option as of Jan 2019 and you must put down 20% for all FHA loans pertaining to any multifamily property, can anyone confirm or deny this? Thanks in advance!

Justin Homer

Thats not true but you have to contend with FHA's self sufficiency rule which is the main hurdle is using FHA on 3- 4unit properties. Basically, 75% of your in place / todays / current rents have to be greater than your monthly PITI (prin/int/tax/ins).

To make this work, todays gross rents would generally have to be .90% of the price. So if you think of the 1% rule, now imagine .90% and thats the min hurdle rate you're going to have to hit in order generally make FHA work on 3-4 units assuming rates are still 3.75% - 4.50% or under. As rates get higher this general guideline might have to go up to 1.00% of price.

Right now FHA for 3-4 units with 720 fico is around 3.875% ish

Originally posted by @Albert Bui :

Originally posted by @Justin Homer:

Hi everyone, so I am new to real estate investing and am trying to get my first investment property. I am a real estate agent in MN but have only been doing that since August of 2018 so I am still learning a lot about how the industry works! My main goal right now is to owner occupy a duplex-fourplex and put down 3-5% through an FHA loan and avoid the whopping 20% that most investment properties require. My lender is telling me that this is no longer an option as of Jan 2019 and you must put down 20% for all FHA loans pertaining to any multifamily property, can anyone confirm or deny this? Thanks in advance!

Justin Homer

Thats not true but you have to contend with FHA's self sufficiency rule which is the main hurdle is using FHA on 3- 4unit properties. Basically, 75% of your in place / todays / current rents have to be greater than your monthly PITI (prin/int/tax/ins).

To make this work, todays gross rents would generally have to be .90% of the price. So if you think of the 1% rule, now imagine .90% and thats the min hurdle rate you're going to have to hit in order generally make FHA work on 3-4 units assuming rates are still 3.75% - 4.50% or under. As rates get higher this general guideline might have to go up to 1.00% of price.

Right now FHA for 3-4 units with 720 fico is around 3.875% ish

 Hi @Albert Bui -- I appreciate the detailed post! I am currently considering house hacking a 3-4 unit property in Jersey City or Union City, NJ, and I am a bit scared of the self sufficiency rules. Would you mind detailing how you calculated the 0.90% number? What assumptions did you use?

Thanks!

(hopefully you see this, the @ mention doesn't seem to be working!)

Originally posted by @Tom Wagner :

Originally posted by @Albert Bui:

Originally posted by @Justin Homer:

Hi everyone, so I am new to real estate investing and am trying to get my first investment property. I am a real estate agent in MN but have only been doing that since August of 2018 so I am still learning a lot about how the industry works! My main goal right now is to owner occupy a duplex-fourplex and put down 3-5% through an FHA loan and avoid the whopping 20% that most investment properties require. My lender is telling me that this is no longer an option as of Jan 2019 and you must put down 20% for all FHA loans pertaining to any multifamily property, can anyone confirm or deny this? Thanks in advance!

Justin Homer

Thats not true but you have to contend with FHA's self sufficiency rule which is the main hurdle is using FHA on 3- 4unit properties. Basically, 75% of your in place / todays / current rents have to be greater than your monthly PITI (prin/int/tax/ins).

To make this work, todays gross rents would generally have to be .90% of the price. So if you think of the 1% rule, now imagine .90% and thats the min hurdle rate you're going to have to hit in order generally make FHA work on 3-4 units assuming rates are still 3.75% - 4.50% or under. As rates get higher this general guideline might have to go up to 1.00% of price.

Right now FHA for 3-4 units with 720 fico is around 3.875% ish

 Hi @Albert Bui -- I appreciate the detailed post! I am currently considering house hacking a 3-4 unit property in Jersey City or Union City, NJ, and I am a bit scared of the self sufficiency rules. Would you mind detailing how you calculated the 0.90% number? What assumptions did you use?

Thanks!

(hopefully you see this, the @ mention doesn't seem to be working!)

It's a quick rule of thumb or short cut I put together to simply the actual guideline of 75% of gross income minus PITI. The rule of thumb is based on 4% rate so right now rates are better in the lower 3%'s so the rule of thumb would be adjusted to roughly .85% of sales price per month.

@Justin Homer Fake news.