House Hacking with a 203k Loan

Rehabbing & House Flipping
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House Hacking with a 203k Loan

Joshua Randall
Lender · Lakeland, FL · Member since 2020 · 59 posts · 23 votes

If I were to purchase a Trip-Plex with the expectation of living in one of the units. Would I be able to use the 203k loan to rehab the property? I know it works for your basic single family home but will it work for a multi unit property? I feel like this would be an incredible way to use a financing tool for a value add property!

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Steve SchulmanBusiness Member
Real Estate Agent · Jersey City, NJ · Member since 2019 · 72 posts · 49 votes
5y

Hi @Joshua Randall. Yes- you can use an FHA 203k rehab loan for 1-4Fam. I highly recommend it, too.

Your only hurdle will be passing the self sufficiency test, which is for 3-4Fam units. 75% of market or current rents must be more than your PITI. Essentially, the bank uses a 25% vacancy rate; it's not ideal, but it is what it is.

Good thing is you will be able to use ARV rents per your 203k rehab. In some markets, your best and only way to get around this self sufficiency test is to find 3-4Fam that is highly, distressed and could use the value-add.

[email protected]732-439-4364
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  • Steve SchulmanBusiness Member
    Real Estate Agent · Jersey City, NJ · Member since 2019 · 72 posts · 49 votes
    5y

    Hi @Joshua Randall. Yes- you can use an FHA 203k rehab loan for 1-4Fam. I highly recommend it, too.

    Your only hurdle will be passing the self sufficiency test, which is for 3-4Fam units. 75% of market or current rents must be more than your PITI. Essentially, the bank uses a 25% vacancy rate; it's not ideal, but it is what it is.

    Good thing is you will be able to use ARV rents per your 203k rehab. In some markets, your best and only way to get around this self sufficiency test is to find 3-4Fam that is highly, distressed and could use the value-add.

    [email protected]732-439-4364
    The Schulman Group | Compass · VIP Team568 Reviews
    WebsiteView Page
    1Reply
  • Ruben Loredo
    Member since 2021 · 30 posts · 11 votes
    5y

    Good question.   I have wondered about this too as this is my next type of project I want to experience.   

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  • Joshua Randall
    OP
    Lender · Lakeland, FL · Member since 2020 · 59 posts · 23 votes
    5y
    Originally posted by @Steve Schulman:

    Hi @Joshua Randall. Yes- you can use an FHA 203k rehab loan for 1-4Fam. I highly recommend it, too.

    Your only hurdle will be passing the self sufficiency test, which is for 3-4Fam units. 75% of market or current rents must be more than your PITI. Essentially, the bank uses a 25% vacancy rate; it's not ideal, but it is what it is.

    Good thing is you will be able to use ARV rents per your 203k rehab. In some markets, your best and only way to get around this self sufficiency test is to find 3-4Fam that is highly, distressed and could use the value-add.

    Okay interesting! So with my triplex, the rents in the 3 units over a period of a year has to exceed my PITI with a vacancy rate of 25% of the year. Let me know if I'm saying that right. So would they try to calculate the income then of the unit I was going to live in as a rental unit also or just the other 2 units?

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  • Steve SchulmanBusiness Member
    Real Estate Agent · Jersey City, NJ · Member since 2019 · 72 posts · 49 votes
    5y

    Yes, they calculate rent figure from all units in the building including yours, then they take 75% of that number, hence the 25% vacancy. So, in your case, if total rent roll from the 3 units is more than your payment + pmi, interest, taxes and insurance you are good to go. 

    [email protected]732-439-4364
    The Schulman Group | Compass · VIP Team568 Reviews
    WebsiteView Page
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