Conventional loan Owner Occupied 2Fam - is low DP ~5% exists?

[Erick Sembrano]

My wife and I are currently looking for our next house hack and searching for a 2 family in the Greater Boston Area and surrounding cities north of Boston, Massachusetts. Previously when we bought our first owner occupied 3 family, we were able to get a conventional loan Low down payment. It was supposed to be 5% DP but the lended has a cap for me at that time on how much we can lend so ended up putting in more cash for the down payment around 7% so still ended up pretty good.  

Currently, the lenders I've reached out to are either recommending to get an FHA for low down payment vs paying 15% down payment for conventional loan. Our FHA offers have not been getting any success and seems like some sellers don't like to deal with it likely due to some potential issues with the property per FHA guidelines (eg paint chipping, etc).

Wondering if the anyone knows if the low downpayment for conventional loan still exists or rules have changed and it's essentially nonexistent at this time. Would also appreciate any recommendations if any knows any lender that can offer this low down payment conventional loan for owner occupied small multifamily. 

Thank you guys! 

[Joshua Janus]

There may be down payment assistance programs in your area. Check with your lender to see if you qualify for any. I am in Columbus, Ohio and there are ones such as the CHAMP loan. 

[Marc Rice]

The loan you did on your 3 unit was the "Homepossible loan" which has income max requirements on it for 2-4 unit owner occupieds. I did that on my first triplex I bought and it was great.

You're going to have to go FHA or call around to 25+ banks and ask them if they have a portfolio product on an owner occupied 2-4 unit. Like Josh said we have a local lender here that has a portfolio 3-5% down conventional loan with no pmi, but its only for 1st time home buyers in Ohio.

[Kim M.]

Hi Erick! Using FHA does put you at a disadvantage for sure. In fact, just the fact that you will be putting a low amount down somewhat already has you at a disadvantage. You didn't mention if you have sold that 3 family or not. If not you have options. Can you take out an equity line of credit against the first investment and use that as leverage?

Do you have an agent assisting you with this second property?  They should have some suggestions for you as they would know what's available in your specific area.  

[Andy Rousch]

Are you able to pull money from any other area to get the 15% conventional down payment? you could do this just to get into the house, and then refinance out to a owner occupied 3.5% FHA to get your other 11.5% out and put that money back into whatever it came from

[Erick Sembrano]

Thank you for all your replies and it did made me think of other things to make this possible.

@Joshua Janus and @Marc Rice Thank you for the responses. As far as I understand when I bought my first 3 unit owner occupied loan, it was a straight up conventional loan. It was a 820k purchase price and the lender would only lend 750k of that so I ended up putting 70k (~7%) as my downpayment. It may be the same as the "Homepossible Loan"...could be, this is actually the first time I've heard of it, cool! I will have to look around and talk to several other lenders I think and see if they will say the same thing or one of them will have a separate solution of the situation. Thank you again!

@Kim M. Hi Kim! I still live on our 3 family and plan to keep it for a long time unless an opportunity comes up that it makes sense to sell and then to reinvest. That's a good suggestion to look into a HELOC. I do have an agent and will ask him for more suggestions. Let me know if you have anyone that I should reach out that my possibly help look for a better lending solution? Also, glad to hear from someone around here in Boston!

@Andy Rousch Thank you! I think I can pull money from some other areas for the 15% downpayment. But I like how you think, haven't thought about refinancing a conventional to an FHA! Have you done this before?

[Ashley Cross]

You are correct Erick. That was a loan program that was supposed to come back but never did. You'll now need 20% down for an owner occupied triplex and 15% down for an owner occupied duplex with conventional financing. 

[Josue Velney]

@Erick Sembrano Hi Erick, I am in the Boston market like you. My favorite place to buy is in Roxbury. The best advice I could give you is to reach out to community banks. They should have some loan programs that could help. A few years back I had the same issue. One of the local community banks funded my purchase. I currently have 250k increase in equity. 

[Andy Rousch]

@Erick Sembrano I have done it before to pull money out in order to purchase another rental. It does have to be your primary for at least a year and it also uses up your FHA loan. There are multiple ways to legally have multiple FHA loans at the same time as well depending on a few situations

[Erick Sembrano]

@Ashley Cross Good to know! That's a bummer for those wanting to house hack with low DP. I hope that loan program does come back in the future as it is very helpful! 

@Josue Velney It's always nice to hear from a fellow investor in the area! I should do that and reach out to local banks around here. How much did the local community bank cover the purchase of your property? And happy to hear about the equity gain of 250K! That's awesome, congratulations!

@Andy Rousch I should think about pulling money out of my current triplex that I live in. Did you use a HELOC or did you do a cash out refi to get money out? Thanks again!

[Josue Velney]

@Erick Sembrano The community bank let me put down 5 percent with no PMI. The secrete is you have to ask the right questions. You must be willing to swim to the ship. You can't wait for the ship.

[Erick Sembrano]

@Josue Velney That is amazing! Super impressed with this! I know I'm not very good with asking the right questions many times, so need to get more experience and learn : ). So if you don't mind me asking, which bank did you use? Also how were you able to get them to do a 5% down without PMI?

[Michael Noto]

@Erick Sembrano I work with a lender here in CT who is also very active in MA and in the past he has been able to do 5% owner occupied down payment loans for multi family. Send me a PM and I can give you his info, he may be worth a call to see if he can help you out. 

[Josue Velney]

@Erick Sembrano I don't believe BP lets members give out that information. Direct message me for the name. They are a great bank but I don't use them as much anymore. Every bank has pro/con. The second questions.... I did not talk them down at all. They already had the loan program. They just did not advertise it. That is why I said you have to ask the right questions. Asking the right questions will get you the combination code to the vault. 

[Andy Rousch]

@Erick Sembrano I used a HELOC because I wasn't sure of the exact amount I was going to need, and then I refinanced to pay off the HELOC and bring it all back into one mortgage. Either strategy would work though. I also wanted the experience of using a HELOC just so I know exactly how the tool works for the next time that I want to use one and also so I can explain it well to others. Also, what @Josue Velney said is true too. Keep asking around small banks and you might find better programs. My partner and I were able to leverage a paid off property as a down payment towards another rental with no cash out of pocket other than closing costs which was a pretty awesome tool but it took about 5 different banks to find one that had that program. Keep asking around and at the very least you will gain education even if you don't find a program right for you 

[Erick Sembrano]

@Andy Rousch Thanks for your share. I should explore how HELOC works and if it will in my situation. Also should look into asking many banks about loan programs and how they can help.

[Andy Rousch]

Sounds good @Erick Sembrano I will send you a dm about a 5% down conventional program for multifamily