First home with mother in law or duplex to help offset mortgage

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First home with mother in law or duplex to help offset mortgage

Ethan Hansen
Member since 2020 · 5 posts · 3 votes

My wife and I are looking to buy our first home. We're looking to buy something with a basement or mother in law apartment or just a duplex to help offset the mortgage payments. Based on my research, I think we will need a loan where part of the rental income can be counted as income towards getting the loan. So far I think we have 2 options: FHA owner occupied duplex loan or a HomeReady Mortgage through Fannie Mae. Are these realistic options and are there any other ways to accomplish what we want? How and what would be the best way to go about doing this?

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Cody Steck
Residential Real Estate Agent · Salt Lake City, UT · Member since 2014 · 156 posts · 50 votes
5y

House hacking is awesome. I have done that myself 4 times now. Getting the rental income counted toward your income, to help with qualifying, is going to be easier on a duplex, rather than something with a mother in law. (Not sure if you can even count it on a MIL place that is owner occupied - you'd have to talk to a lender) 

I've always gone with conventional loans on my properties, but going FHA is not a bad option if it's what can get you into a home sooner than later.

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  • Cody Steck
    Residential Real Estate Agent · Salt Lake City, UT · Member since 2014 · 156 posts · 50 votes
    5y

    House hacking is awesome. I have done that myself 4 times now. Getting the rental income counted toward your income, to help with qualifying, is going to be easier on a duplex, rather than something with a mother in law. (Not sure if you can even count it on a MIL place that is owner occupied - you'd have to talk to a lender) 

    I've always gone with conventional loans on my properties, but going FHA is not a bad option if it's what can get you into a home sooner than later.

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  • Ethan Hansen
    OP
    Member since 2020 · 5 posts · 3 votes
    5y

    @Cody Steck Thank you for your response. So can rental income be counted toward income using a conventional loan?

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  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @Ethan Hansen

    First off, great to hear you're taking a step toward real estate investment. The first purchase is the hardest with all the unknowns. After that you'll feel a lot more confident to do it again.

    We work with a lot of house hacking buyers here in Denver and Colorado Springs, so I don't totally know about your area. That said, the mortgage rules should be the same. The answer, as with a lot of real estate, is: It depends. Talk to a lot of different lenders. See what they say. Some won't count rental income until it's been on your tax returns for two years. Others will look at a duplex and count 70% of the market rents for the other side toward your income. 

    One other thing I'd note, and it's not what you asked, but be aware that if you buy a duplex, you can rent the other side and then rent both sides separately when you move out. If you buy a SFH -- that is zoned single-family -- and that has a mother-in-law suite or basement apartment, you can rent that space while you live there but as soon as you move out, I'm guessing your local zoning code allows you to only rent the whole unit. In rare cases, you can find a SFH with a potential basement apartment and on a lot that's zoned for multi-family -- "R2" in Colorado Springs, for example, or "TU" in Denver. That way you can take a backdoor into getting a duplex. 

    Good luck.

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  • Chris LopezPro Member
    Real Estate Agent · Denver, CO · Member since 2015 · 1k+ posts · 858 votes
    5y

    @Ethan Hansen My lenders have not been able to use rental income from a MIL on the purchase side. Of course, talk with lenders to verify. The message I've received is that it needs to be a real separated unit (duplex+)

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  • Sean Gribbons
    Flipper/Rehabber · Denver, CO · Member since 2015 · 134 posts · 61 votes
    5y

    I don't think FHA will count the rental units income if its a single family home. Duplex they will.

    I did exactly what you are trying to do using a normal FHA 3.5% down loan. Basement had separate entrance, kitchen, and one bedroom. I now rent it out and it pays my mortgage and then some.

    If you can do 5% down conventional would likely be the way to go but normal FHA will get you there

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