House Hack Funding..

17 Replies

Hey guys, so I’m just curious. I’ve been looking into buying a multi family unit and trying to keep my down payment low. I’ve run into the problem with Conventional loan product requiring 15% down....are there any other products to get around the higher barrier of entry? I do not qualify for other fthb programs because my income is too high (what I was told)

@Chris Mendoza 

FHA is a low down payment option only requiring 3.5% down. Many investors get started this route and then later refinance with conventional to get rid of the mortgage insurance, once they have at least 20% equity built into the house.

For conventional; 

A single unit is going to require 3-5% down'

A duplex 15% down

3-4 units requires 20-25% down

Promotion
BAM Capital
Multifamily Syndicator
Targeted 10% Monthly Returns | Passive Income
Backed by institutional-grade apartments, strong sponsor track record, $700M AUM, over 5,000 units
Learn More

@Chris Mendoza Though they just made their requirements a bit harder to qualify for , but a Conventional Freddie Mac HomePossible might be a good option here; you can get an owner occupy multi family (up to 4 units) for 5% Down.

I see you’re from Jersey, I actually invest in Newark, NJ and I know a really good lender. I can refer you if you’d like.

When it comes to multifamily 3-4 low downpayment you really have only two options: FHA (3.5%) & Home Possible (5%), must be owner occupied thought. We help buyers with downpayment/rates/closing with our subsidy and grant program.

Just remember that sellers flinch big time when presented an offer with an FHA or VA loan contingency. I certainly do. They are onerous and not the same as conventional to us, especially with older properties.

Does the Home Possible 5% down loan have the same appraisal requirements as VA/FHA I wonder? Or are they more like a conventional appraisal?

Originally posted by @Anastasia G.:

@Steve Vaughan home possible is conventional loan. There is no sustainability test as with FHA. In some Instances FHA will have lower rates than conventional.

Thanks, Anastasia.

I'd argue any lower interest rate an FHA loan may offer is offset by lifetime MIP. I have properties where the mortgage insurance fell of or I was able to get removed years ago, saving me thousands of the wasted dollars mortgage insurance is.

It's not the rental income qualifying for the loan I was speaking of, it's the physicap/current code appraisal inspection. Stairwell ceiling heights, stair steepness, railing spindle requirements, windows, etc that can't be corrected resonably and certainly not by the buyer. Waste of time and very frustrating for sellers of older properties to deal with FHA or VA.

@Steve Vaughan We work in markets that are 99% of houses are 70+ years, most of the houses require some work if sellers want to sell to retail buyer. I was pointing out one significant difference in appraisal for FHA of 3-4 Family; In addition to physical/current code appraisal inspection the property has to sustain itself, meaning 75% of rental income has to cover monthly mortgage payment. In our markets the higher price of the property the harder it is to meet that test. Yes, FHA is not for everyone, however in our market it makes sense to do FHA over conventional; It comes down to buyers credit profile, affordability, and goals.


Originally posted by @Anastasia G.:

@Steve Vaughan We work in markets that are 99% of houses are 70+ years, most of the houses require some work if sellers want to sell to retail buyer. I was pointing out one significant difference in appraisal for FHA of 3-4 Family; In addition to physical/current code appraisal inspection the property has to sustain itself, meaning 75% of rental income has to cover monthly mortgage payment. In our markets the higher price of the property the harder it is to meet that test. Yes, FHA is not for everyone, however in our market it makes sense to do FHA over conventional; It comes down to buyers credit profile, affordability, and goals.

A property needing to sustain itself is not specific to FHA loans. The first thing my conventional lender asks for is the rent roll.

Deals that pencil being harder to find are not specific to FHA or your market. Having to put some work into a property to get it ready for retail sale isn't either. That usually doesn't involve changing the ceiling height of stairs going down to the basement though.

What is specific to FHA is expensive lifetime MIP and condition/code rules. I'd recommend to anybody to save up the additional 1.5% and go conventional.

@Zach Quick yes I am looking to owner occupy, but the individual I was talking to said I need more skin in the game with DP...however I was under the impression I would be able to get a loan with less DP

Promotion
Apartments.com
List, Screen, Lease, Get Paid, Manage.
No Better Place to Lease Your Place
Owners rely on the #1 rental site to get the best results from their rental properties.
Get Started Now

@Chris Mendoza Home Possible is a low down payment mortgage that Freddie Mac offers. It allows you to get up to a 4 units property with as little as 5% Down. Here's a quick comparison to FHA

Pros:

- Lower Monthly Mortgage Insurance (PMI)

- Most sellers like conventional offers better than FHA offers

Cons:

- Typically slightly higher interest (about half a point to 3/4 of a point)

- Higher Credit Score Requirement.

Even with that, I still prefer HomePossible over FHA, because I'm able to save a couple hundreds a month from the PMI , and that helps my cash flow.

@Chris Mendoza

FHA has a self sufficiency rule that must be met with 3-4 unit properties.

The maximum mortgage amount for 3-4 unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status. This is also taking into consideration, a 25% vacancy factor.

Home Possible used to be a great product for owner occupying with a low down payment of 5%. It now has eliminated the no restriction area's and also limits your income to 80% of the median income. You can check out their site to see if you meet the income restrictions. 

https://sf.freddiemac.com/working-with-us/affordable-lending/home-possible-eligibility-map

@Ley Nezifort

Youve got to meet the home possible income limit however. Its a great program dont get me wrong.

As a lender i helped clients get a 3 family going fha, got the rent estimate figures to meet fha criteria, refinanced to conventional and got a heloc 9 mo later, used the heloc so they could buy another 3 family going fha, and i am not refinancing to conventional so they can get another home with 3.5 percent down. In ny i can get them some grants too and they dont require you to be a first time buyer.