FHA financing question on 4plex

12 Replies

I'm looking at a property in college station Texas, it's a 4plex with a "bonus"office space on ground level. Would it be possible to get a FHA loan on a property like this? Or would it be looked at as a commercial property because it's essentially 5 units and one of them a commercial space, or is there possibly a creative way to make this work, Maybe by converting the space to be used by the tenants?

Jim, thank you for your reply. I am aware of this stipulation and to be honest am not interested in actually purchasing the example property I was just analyzing it as it's one of the few properties on the MLS in college station that (almost) hits the 1%rule of thumb, it would also be above FHA loan limits. Do you know if a property has a commercial unit if it's automatically not eligible for FHA? Have you ever heard of a seller and buyer working together to modify a property that doesn't comply with general FHA rules and finding a work around?

Get a copy of the county records, and see how the property is legally recorded. If it's classified as a 1 to 4 Unit residential building I see no reason you couldn't obtain an FHA loan. If commercial, you're stuck with commercial lending.

 If you Google “Brazos County Property Record Search” there is a website to show all the publicly available tax information. You can search by the property address. That may show you what it’s recorded as. 

Good luck!

@Evan Morrison . RE: Do you know if a property has a commercial unit if it's automatically not eligible for FHA? RESPONSE: Zero Knowledge! Hopefully, can get a Lender to chime in on that question.

Have you ever heard of a seller and buyer working together to modify a property that doesn't comply with general FHA rules and finding a work around?
RESPONSE: I have no personal experience, but would think would be possible. I would want to get the Lender's OK upfront, before I put much effort and especially cash in to the changes. 

Originally posted by @Evan Morrison :

I'm looking at a property in college station Texas, it's a 4plex with a "bonus"office space on ground level. Would it be possible to get a FHA loan on a property like this? Or would it be looked at as a commercial property because it's essentially 5 units and one of them a commercial space, or is there possibly a creative way to make this work, Maybe by converting the space to be used by the tenants?

HI Evan,

It all depends on the title report when you pull up the property. If it pulls up as a fourplex then you can convert the office back to regular living space prior to appraisal or if it is titled as residential 4plex you can also opt for 203k to convert the space back to 4 living units as well. The 203k program just gives you some flexibility to fix, repair, convert back to livable use.

If it pulls up as commercial then it will depend on how much % of the property is set aside for commercial use and how much is residential. Typically lenders want the commercial use sqft to be less than 25%.

Other concerns:

- FHA limits go up for more units so if your limit is 350k then 2, 3, 4 units loan limits might be higher depending on how many units you're looking at from 1-4

- Self sufficiency rule with FHA - this is not rental income calc its just a test FHA does - 75% of the market rents of all 4 units must be greater than the monthly PITI (prin/int/tax/ins) payment otherwise FHA will not finance the property or you'll have to work strategies to either increase the rents or lower the monthly PITI (more down payment, rate buy down, going 30 year fixed to 5/1 ARM, many other strategies, etc).

- 3 months cash reserves typically are required based on monthly PITI payment

- health and safety of the property must pass a fha appraisal otherwise repairs will be required to be made (chipped paint, leaks, loose handrails, GFCI (ground fault circuit interrupter) outlets in baths/kitchens/wet areas, holes in sheet rock, double strapped water heaters, CO(carbon monoxide) and CO2 detectors in main living areas, and etc.

Those are the general items to utilize FHA financing.


Hope that

 

Originally posted by @Evan Morrison :

Have you ever heard of a seller and buyer working together to modify a property that doesn't comply with general FHA rules and finding a work around?

I had an investor client recently who wanted a property to house hack. It was a SFH where the attic had been converted to a separate unit (lets call it unit B), accessible only from the outside of the home. Property also had a detached "garage" with garage apartment above (unit C) and what was once the garage below was converted in to a 4th unit (unit D). One of the main house bedrooms had its own entrance/exit and was previously used to as a single room Airbnb (unit E). Needless to say there was a lot going on in this property.

We had to go through two different lenders AND appraisers to make the deal happen all while no modifications to the property were completed. For us it was just finding the right appraiser to understand our point of view. 

 

Originally posted by @Chris Quinn :
Originally posted by @Evan Morrison:

Have you ever heard of a seller and buyer working together to modify a property that doesn't comply with general FHA rules and finding a work around?

I had an investor client recently who wanted a property to house hack. It was a SFH where the attic had been converted to a separate unit (lets call it unit B), accessible only from the outside of the home. Property also had a detached "garage" with garage apartment above (unit C) and what was once the garage below was converted in to a 4th unit (unit D). One of the main house bedrooms had its own entrance/exit and was previously used to as a single room Airbnb (unit E). Needless to say there was a lot going on in this property.

We had to go through two different lenders AND appraisers to make the deal happen all while no modifications to the property were completed. For us it was just finding the right appraiser to understand our point of view. 

So did they classify the property as a single family 1 unit home or a multi-family 4-5 unit?  

Originally posted by @Eric Heinen :
So did they classify the property as a single family 1 unit home or a multi-family 4-5 unit?  

After switching lenders, a new appraiser came and he did classify it a Single Family Residence!!! He did note accessory dwelling unit. We were able to fill him in on what our argument was as both the buyer and seller agreed this should be SFH with accessory units. Ultimately, he gave us everything we wanted. My buyers even had some built in equity! Total of 10 weeks in escrow, but we got it done.

Originally posted by @Chris Quinn :
Originally posted by @Eric Heinen:
So did they classify the property as a single family 1 unit home or a multi-family 4-5 unit?  

After switching lenders, a new appraiser came and he did classify it a Single Family Residence!!! He did note accessory dwelling unit. We were able to fill him in on what our argument was as both the buyer and seller agreed this should be SFH with accessory units. Ultimately, he gave us everything we wanted. My buyers even had some built in equity! Total of 10 weeks in escrow, but we got it done.

Did your buyer probably use conventional then ? Because fha appraisals follow the property and are assigned a case number which links that report up to a property 

 

Originally posted by @Albert Bui :

Did your buyer probably use conventional then ? Because fha appraisals follow the property and are assigned a case number which links that report up to a property  

Yes, conventional loan, owner occupied. Buyer wanted to put 5% down, so we had to get SFH status.