Wasilla, AK · Member since 2018 · 57 posts · 3 votes
I am looking at a 4plex and I will need to go FHA.
I know that I will need to live in the 4 plex for at least 1 year.
My question is: do I need to sell my current home before I move into the 4 plex?
My current home has conventional financing.
Thank you!
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Nate Castle@Tashina Taylor@Sam Trentwood there are some REALLY important rules to be aware of here when buying a property with an FHA loan and you currently OWN a home. This is going to sound a little crazy but this is directly from the FHA:
1. If Rental Income is being derived from the Property being vacated by the Borrower, the Borrower must be relocating to an area more than 100 miles from the Borrower’s current Principal Residence. The Mortgagee must obtain a lease agreement of at least one year’s duration after the Mortgage is closed and evidence of the payment of the security deposit or first month’s rent.
This is essentially stating that if you need that rental income you must be moving more than 100 miles away and have an executed lease. If you don't need the rental income to qualify then you don't have to worry about it. But that's not all...
2. Where the Borrower does not have a history of Rental Income for the Property since previous tax filing, including Property being vacated by the Borrower, the Mortgagee must obtain an appraisal evidencing market rent and that the Borrower has at least 25 percent equity in the Property
So if you DO need the rental income not only do you have to move 100 miles away...you ALSO have to have an appraisal...AND that appraisal needs to reflect 25% equity in that property! If there's not 25% equity, then you can't use the rental income. That's an insane requirement. And that's why this is pretty hard to do in many FHA scenarios like this. Again, if you don't need the rental income, then it doesn't matter. So please do speak with a lender and get prequalified to find out if you need it or not.
Rental Property Investor · Dallas, TX · Member since 2018 · 34 posts · 20 votes
7y
@Nate Bibbo
You don’t have to rent out your current house unless you need the rental income or need to use the potential rental income to offset the current mortgage. But your current house no longer be your primary residence.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Nate Castle@Tashina Taylor@Sam Trentwood there are some REALLY important rules to be aware of here when buying a property with an FHA loan and you currently OWN a home. This is going to sound a little crazy but this is directly from the FHA:
1. If Rental Income is being derived from the Property being vacated by the Borrower, the Borrower must be relocating to an area more than 100 miles from the Borrower’s current Principal Residence. The Mortgagee must obtain a lease agreement of at least one year’s duration after the Mortgage is closed and evidence of the payment of the security deposit or first month’s rent.
This is essentially stating that if you need that rental income you must be moving more than 100 miles away and have an executed lease. If you don't need the rental income to qualify then you don't have to worry about it. But that's not all...
2. Where the Borrower does not have a history of Rental Income for the Property since previous tax filing, including Property being vacated by the Borrower, the Mortgagee must obtain an appraisal evidencing market rent and that the Borrower has at least 25 percent equity in the Property
So if you DO need the rental income not only do you have to move 100 miles away...you ALSO have to have an appraisal...AND that appraisal needs to reflect 25% equity in that property! If there's not 25% equity, then you can't use the rental income. That's an insane requirement. And that's why this is pretty hard to do in many FHA scenarios like this. Again, if you don't need the rental income, then it doesn't matter. So please do speak with a lender and get prequalified to find out if you need it or not.
Wasilla, AK · Member since 2018 · 57 posts · 3 votes
7y
@Andrew Postell thank you for your help!
My lender is telling me that FHA won’t let me keep my house while moving into a 4 plex because there isn’t justification for the downgrade. So I either have to sell me house first before closing on the 4 plex, or make an offer contingent on the sale on my house.
The switch from house to 4plex seems tricky.
Does this sound right?
Thanks again!
Realtor · Cherry Hill, NJ · Member since 2015 · 33 posts · 87 votes
7y
@Nate Bibbo At a cursory glance, I wouldn't question it if your lender tells you it's not feasible. But, as in most cases, I would recommend calling around to several other lenders and seeing if any see an opportunity for you to use FHA.
Also, while FHA is the cheapest mortgage you can get (unless you are active / retired military and can get a VA loan), there are many low down payment conventional loan options available as well, from both national lenders as well as local entities.
Bottom line - call 3-5 lenders, explain your situation, and see what sort of options they can offer you. They only get paid if they can make the deal happen, so they are incentivized to help walk you through every possibility.
@Tashina Taylor@Sam Trentwood there are some REALLY important rules to be aware of here when buying a property with an FHA loan and you currently OWN a home. This is going to sound a little crazy but this is directly from the FHA:
1. If Rental Income is being derived from the Property being vacated by the Borrower, the Borrower must be relocating to an area more than 100 miles from the Borrower’s current Principal Residence. The Mortgagee must obtain a lease agreement of at least one year’s duration after the Mortgage is closed and evidence of the payment of the security deposit or first month’s rent.
This is essentially stating that if you need that rental income you must be moving more than 100 miles away and have an executed lease. If you don't need the rental income to qualify then you don't have to worry about it. But that's not all...
2. Where the Borrower does not have a history of Rental Income for the Property since previous tax filing, including Property being vacated by the Borrower, the Mortgagee must obtain an appraisal evidencing market rent and that the Borrower has at least 25 percent equity in the Property
So if you DO need the rental income not only do you have to move 100 miles away...you ALSO have to have an appraisal...AND that appraisal needs to reflect 25% equity in that property! If there's not 25% equity, then you can't use the rental income. That's an insane requirement. And that's why this is pretty hard to do in many FHA scenarios like this. Again, if you don't need the rental income, then it doesn't matter. So please do speak with a lender and get prequalified to find out if you need it or not.