Do I have to move to another state to buy a multi or settle for single family??

[Lance Gordon]

Hi All,

My situation: First time home buyer. I was approved for $320K by a lender. I am located in Florida but I am open to relocating anywhere in the US for the right opportunity. My plan before I knew anything, was to buy a tri or quadplex with an FHA loan, house hack, and STR or MTR out the other units.

A few weeks ago I was looking at a Quadplex 2/1 in North Tampa listed at $749K.  My lender couldn't make the numbers work using the rents from the two units that were already rented out.  He also said, in general, he could not include rents for prospective future tenants in his calculations.  He said the other units would have to already be rented bringing in rental income for him to include them and qualify me for a higher purchase price.  I hadn't heard that before.  His advice was to look at single families in the range I was approved for.  I spent a lot of time looking at multis that I couldn't get approved for and now have shifted to looking at single families.

I have heard FHA and house hacking a multifamily pushed so many times on the BP podcasts as a first time home buyer so I was convinced that that was my best route.

Do I just accept that I will be buying a single family for my first property, find another lender, and/or move to another state where multi families are more affordable?

Also, because I am open to relocating, does anyone have any advice of where in the US I could qualify for a multifamily and is a good area for STR?

Any advice or guidance is appreciated.

Thank you!

Sincerely,

Lance aka Overwhelmed and confused

[Luis Somoza]

Quote from @Lance Gordon:

Hi All,

My situation: First time home buyer. I was approved for $320K by a lender. I am located in Florida but I am open to relocating anywhere in the US for the right opportunity. My plan before I knew anything, was to buy a tri or quadplex with an FHA loan, house hack, and STR or MTR out the other units.

A few weeks ago I was looking at a Quadplex 2/1 in North Tampa listed at $749K.  My lender couldn't make the numbers work using the rents from the two units that were already rented out.  He also said, in general, he could not include rents for prospective future tenants in his calculations.  He said the other units would have to already be rented bringing in rental income for him to include them and qualify me for a higher purchase price.  I hadn't heard that before.  His advice was to look at single families in the range I was approved for.  I spent a lot of time looking at multis that I couldn't get approved for and now have shifted to looking at single families.

I have heard FHA and house hacking a multifamily pushed so many times on the BP podcasts as a first time home buyer so I was convinced that that was my best route.

Do I just accept that I will be buying a single family for my first property, find another lender, and/or move to another state where multi families are more affordable?

Also, because I am open to relocating, does anyone have any advice of where in the US I could qualify for a multifamily and is a good area for STR?

Any advice or guidance is appreciated.

Thank you!

Sincerely,

Lance aka Overwhelmed and confused

Firstly, any 3-4 unit property needs to meet self-sufficiency standards for a FHA loan.

Secondly, you don't understand enough about the process to interpret how the mortgage process works. That may sound harsh, but its a harsh reality most borrowers need to learn. Math is math.

Third, From FHA: "To calculate the Effective Income from the subject Property where the Borrower does not have a history of Rental Income from the subject Property since the previous tax filing, the Mortgagee must use the lesser of:  the monthly operating income reported on Freddie Mac Form 998; or  75 percent of the lesser of: o fair market rent reported by the Appraiser; or o the rent reflected in the lease or other rental agreement."

What that means is long term lease agreements, not STR/MTR, are acceptable standards for that calculation based on the appraiser's estimates. This is why speaking with a qualified professional is important so they can explain the nuances of lending and the guidelines versus colloquial usage and understanding.

That said, going from a 320K home to a $750K home is a stretch. Meeting the self-sufficiency test isn't as easy as you may believe.

Even IF the other units were rented for HIGHER than the market estimate - you need to understand the guidelines. It's the LESSER of the lease OR the market rents. So you could have leases for 10K a month and it's meaningless in this specific case if the market rent estimate is less, and then you only get 75% of that.