Househacking and Loan Order

4 Replies

I am interested in starting out in househacking multi (1-4) unit properties. I'm curious of there is a loan order that is beneficial to begin with as far as if you use one you may no longer qualify for another. Looking into using HUD section 184, FHA or FHA 203k, and Coventional. Is there an order to start with to avoid disqualifying for another one after occupying the 1st, then 2nd for the required year terms?

Sara,

FHA is a great choice for 2-4 unit less money down. Conventional would be better is it was just a single family primary home first then converted to rental. If your buying as a primary home you can use the Conv. 3% down where the PMI is less per month then the FHA MIP. One mistake a lot of people make is they use FHA first to qualify but then fail to refinance to turn the FHA loan into a conventional loan. That free's up your FHA buying power to use again for the 3.5% down and again if your buying a 2-4 unit for less down. Only because conventional requires more down for a 2-4 Unit even as a primary.

@Jason Wray , thank you for the terrific tips, I certainly appreciate your clarity! It sounds like FHA is the way to go for small multi-unit, then refinance into the conventional so that it is then freed up for use again. OR if we have the 184-loan open, then use that first, then FHA and repeat with FHA after refinancing out of them.

Thanks again! 

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@Sara Weber I've done two house hacks on two duplexes so far and my experience and learning has been to stick with conventional if all possible. In my area it was the option of the 3.5% FHA or the 5% conventional. Granted there is an extra 1.5% on the conventional, but the FHA has so many 'hidden' costs that make such a large difference.

1) Conventional loans (at least in my situation) - they will drop PMI payments once I hit 24 successful payments (2 years). Within FHA loans, those MIP payments are essentially permanent until the loan is refinance (which depending rates could be a wild card).

2) In FHA, you also have the additional fees (UFMIP) which is 1.75% of purchase that gets lumped into your loan. Its amortized over 30 years - still ultimately make your total down payment much higher. (don't believe UFMIP counts as equity either - just a tacked on fee - I could be wrong)

3) Can only have one active FHA loan at once, can pretty much have as many conventional loans as your DTI allows. So you'd have to refinance the FHA into conventional before opening up another FHA loan. You may get hit with a seasoning requirement on the refinance that keeps you at first place there longer.

4) FHA I believe requires inspections and to hit certain requirements, where conventional it can be waived. I would still recommend an inspection of course but inspection contingencies can be 'turn offs' to sellers in hot markets.

To me (and id like to hear others opinions) - the only real benefits to FHA is if you are rebuilding credit or cant obtain that extra 1.5% down (maybe high priced market). When we did our cost analysis on our first place, it was like an extra $3000 up front vs $40k+ on the backend of a $200k note. But like I said, you're going to refi prior so it definitely wouldn't get that full $40k+ but who knows what the fed will do with rates in this economy.

@Dustin Broeren

Thank you for the information based on your experiences! I was a little concerned on how easy it is to refinance out of the FHA loan as far as approval and timing etc. Sounds like conventional is the way to go if downpayment and approval is not an issue. Thanks again!