House Hack w/ conventional mortgage @ 95% LTV, 2-4 unit? OK, done
Aimed at folks for whom FHA property standards, the FHA self sufficiency test, etc, is getting in the way. Maybe you're having trouble getting the offer accepted, maybe you don't like that FHA mortgage insurance is there for the life of the loan, or perhaps there's something else about FHA that you find less than ideal. Or, maybe, you just went ahead and assumed that FHA/VA was the only way to house hack, and didn't even consider other low down payment options. Great, this is for you.
Good things, then bad.
The Good:
- 95% LTV, 2-4 unit, for owner occupants. Yup, you read that right.
- PMI can drop off, like with other conventional mortgages. A risk with FHA is that by the time you have the equity to refinance to drop the mortgage insurance, prevailing market rates might be way higher. As this is conventional mortgage, that risk is not present here.
- It's a conventional mortgage. No FHA self sufficiency test, no higher FHA property standards, no FHA "stigma" in the eyes of many listing agents and sellers.
- There are household income limits, by census tract, based on data from the 2010 census. A lot of neighborhoods in 2017, like Fruitvale in Oakland, are very different from 2010. I'll do a list below of a sample of such areas and neighborhoods. This window of opportunity will likely close when the 2020 census is done & it'll go back to only for neighborhoods you might not want to purchase and live in. Note the timing here, 2010 was well into the Great Recession, which means certain places "looked" worse than they really were, temporarily.
- You do not have to be a First Time Home Buyer! There are still restrictions, not all current or recent homeowner's will qualify.
- Loan limits scale up with unit count.
- Only two months reserves required. Instead, your insurance policy will be required to include rent loss insurance. Hey, look, something that actually makes sense! Speaking of rental income...
- Rental income counts as qualifying income, even if you are purchasing a property with vacant units.
- Includes free landlord education course. We don't want you to go into default, so if you don't know how to landlord, we will help with that. Biggerpockets.com is probably better to be honest, but we can't make one-off exceptions just for BP members.
- 95% LTV can be as little as 3% of borrower's own funds, with the use of down payment gifts. PMI gets cheaper as LTV goes down.
- At preapproval, I or one of my folks will teach you how to qualify the property in terms of DTI and rental income, as well as determining if there is an income limit and what it is in that particular census tract.
- Lock in a 30YF while you can, rates are presently edging upwards.
The Bad:
- There are household income limits in many census tracts. Areas that were in "good" parts of town in 2010, for the most part.
- No "high balance" loan amounts, "conforming" only (the above is still true about the "conforming" loan limit scaling up with unit count). We offer 95% LTV 30YF up to $1m, but it's SFR only.
- All borrowers must occupy the property as their primary residence for a year. If counting rental income isn't enough to make it work, honestly, it would be reckless to allow stacking that with non-occupant co-borrower income to boot.
Select places in California, mostly the Bay Area I know and love, that are interesting because they have no income limits, as of 3/11/2017:
- Oakland. Basically all of East and West Oakland, no limit.
- Alameda. Half of the island, checkerboard.
- Berkeley. No limit south and immediately west of Cal, if you want to provide housing to students (still stuck with conforming loan limits though...).
- Stanford. See above.
- Richmond. No income limits as you get away from the water.
- Vallejo. Almost the entire city, no income limit.
- Certain surprising swaths of San Mateo, Sunnyvale, Mountain View, Santa Clara, South SF, SF proper... that's how you know they are basing it on the 2010 census, and not present reality!
- East of the Tunnel, you have to go all the way to Concord or Martinez before "no income limit" starts popping up again.
- Half of Santa Cruz. They think they are Bay Area, so I'll put them here so they can feel good!
- Down in SoCal I note that, for the Marines, Oceanside is mostly no income limit. This program might require less down than a VA loan, in some scenarios, because of the conforming loan limit scaling up with unit count.
- San Diego and Los Angeles are a checkerboard patchwork. I'm guessing it's like the Bay Area, where the out-dated 2010 census data gives you a nice little window of opportunity that will last until the next census is done.
- Back up north, Sacramento, a majority of the city proper and outlying areas have no income limits. I'm guessing all the laid off government employees in 2010 made Sac look worse than it really was during the 2010 census.
Contact info below if you want to chat about your goals, your dreams, and how to make them happen.
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