House Hacking 2-4 Units in Cleveland using HomePossible Mortgage
Freddie Mac’s website explains the Homepossible mortgage as “A responsible, low down payment mortgage option for first-time homebuyers and low- and moderate income borrowers”. What Freddie fails to explain is how great of a tool this loan program is for househacking. Here’s why
The Homepossible Mortgage allows 5% Down Payment on 2-4 Unit - Biggest reason this program is so awesome for owner occupied investors is that it allows buyers to purchase a 2-4 unit property with only 5% down!!! Other conventional programs require 15% - 25% down. The program is available for buyers who
A) are below the Cuyahoga County median income threshold of $70,700
OR
B) are purchasing a home in a low income census tract. Here is the key… Nearly all of Cuyahoga County is in a low income census tract including hot rental areas like Tremont and Ohio City. Below is a map which shows the low income areas which have no income cap. The green portions of the map represent the areas that have no income limit.
Below are some of the other advantages of this program
- Using proposed rental income to qualify – Freddie Mac will allow to use proposed rental income when you purchase an owned occupied 2-4 unit to offset the new mortgage payment. Let's say you have a salary job making $5,000/month. You have a car loan, student loan, and credit card totaling $1,200/moth. You want to buy a house so you get pre-approved to purchase a single family home for $160,000 with 5% down resulting in a proposed PITI payment of $1,000/month. The purchase puts your total monthly debts at $2,200/month which results in a debt to income ratio of 44% ($2,100/$5,000). You are about maxed The next day you drive by a 5,000 sq ft fully remodeled fourplex in Ohio City listed for $500,000. You love the area. You love the home. You crunch the numbers and you find that the other tenants will pay for your entire mortgage. You get super excited…. Then you come back to reality. You remember that you just barely qualified for a $160,000 purchase of a single family one day earlier. No way you can purchase a place more than three times more expensive…. Right?
Not
So
Fast!
- The Homepossible program will allow you to use the projected rent of the other 3 units as qualifying income to offset the new mortgage payment!!! If the proposed rents are high enough they could even offset the entire mortgage payment on the $500,000 purchase! In other words, your debt to income ratio could actually be lower if you purchased a $500,000, 4 unit property than it would be if you purchased a $160,000 single family residence.
- Interest Rates – Another huge advantage with this program is that Freddie Mac waives many normal rate adjustments which are usually associated with credit scores and multi unit properties.
- Private Mortgage Insurance (PMI) - Compared to regular conventional - Homepossible requires lower PMI coverage than traditional conventional loans.............Comparted to FHA – Homepossible does not require an up-front PMI whereas FHA requires a 1.75% upfront PMI. Homepossible monthly PMI will eventually fall off whereas FHA PMI usually stays on the loan for the life of the loan
- Higher Loan Amounts – Loan amounts as high as $931,600. Here is the link for the loan limits by unit http://www.freddiemac.com/singlefamily/news/2018/1127_loan_limits.html
- First Time Homebuyer – In a recent update Freddie Mac no longer limits this program to first time homebuyers.
More helpful info
You can search an individual property address to check the maximum income by following this linkhttp://www.freddiemac.com/homepossible/eligibility.html which will bring you to the search tool below.
Unfortunately the Freddie Mac Map does not provide the green shaded map which shows you all the low income census tracts at the top of the page. . If you prefer this map then I would recommend using the Fannie Mae search tool instead. https://homeready-eligibility.fanniemae.com/homeready/ If you choose to use the Fannie Mae map I urge you to double check the addresses on Freddie’s website before making any offers. Ultimately Freddie Mac will use their map. I have found Fannie’s and Freddie’s maps to be nearly identical however I am sure there are some areas with discrepancies.
Happy Hacking!