FHA loan for 2-4 unit property

9 Replies

I was told by a lender that I need to put 25% down for a 3-unit property in California because in this sector I'll be competing with investors who would be paying cash and flipping for a profit. Basically, he was discouraging me from trying to pursue properties of this size. Has anyone had any experience successfully utilizing an FHA loan for 2-4 unit properties?

Similar situation happened to me. Mortgage broker kept insisting that in 2018 FHA was no longer 3.5% down and had to put down 15%. I kept fighting him on this and he eventually just stop communicating with me.

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@Chris Mason ,  would be the one to ask. Chris can you chime in ?

@Disia Page

Downpay for FHA loans is determined by multiple factors, such as credit score, etc.:

https://www.zillow.com/mortgage-learning/fha-loan/

  • Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
  • Borrowers must have a minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent. FHA-qualified lenders will use a case-by-case basis to determine an applicants' credit worthiness.

There are also max loans you can borrow:

https://entp.hud.gov/idapp/html/hicost1.cfm

I think the bigger issue is that because there is so much competition and cash buyers out there, especially in California, you will be outbid for the properties.

Talk to another lender...

Originally posted by @Dan D. :

Similar situation happened to me. Mortgage broker kept insisting that in 2018 FHA was no longer 3.5% down and had to put down 15%. I kept fighting him on this and he eventually just stop communicating with me.

 Keep searching

3.5% down is still allowed with FHA in 2018.

In a hot market, however, it often takes a little more than writing vanilla offers on vanilla properties listed on the vanilla MLS with FHA 3.5% down, because you are indeed competing with a lot of deep pocketed investors writing stronger offers at 25%+ down. If a listing agent guides her client to 'instruct' them not to present FHA offers, which some do, then the agent is allowed to throw them in the trash without even presenting the FHA offer to the seller. Meaning if the triplex has 20 offers and 15 are FHA, the listing agent only even shows the seller the 5 that are conventional.

Like @Harjeet Bhatti says, Freddie's Home Possible program is nice because it's still very minimal down, but not FHA, so no FHA stigma associated with the offer (no FHA prop standards, no FHA 'self sufficiency test,' the seller/agent knows you don't have a 582 FICO, etc etc). On top of being better financing than FHA anyways, assuming decent (or better) credit. Most lenders do not offer it on 2-4 unit. But it lets you be one of the 5 actually presented, not one of the 15 thrown in the trash without even being reviewed.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

You can put in a backup offer when cash buyers or flippers get them under contract. Worked for me. Also did FHA and had to convince mortgage guy it was allowed. This was for a duplex.

Disia, I did this but it was out in Santa Clarita. Most of the time the numbers didn't work on 3- and 4-units in LA proper (thanks rent control!), and when they did, you'd better believe the cash buyers were ready to pounce. Hence why I expanded my search to the outskirts such as Santa Clarita.

@Disia Page @Chris Mason Yes some of the lenders can't offer FHA because lot of things happened in our industry. If the client is facing problem because FHA loan offer is not being accepted by seller. They can apply for mortgage through Home Shopper Advantage program under FHA. Their file can be underwritten with Income, asset and credit under FHA. Afterwords they can shop and no one can challenge their creditability. (Home Shopper Advantage gives freedom to borrower who want firm approval from U/W with appraisal condition open).

Harjeet Bhatti, Lender in IL (#230554)
+18479628229

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