Loan amount for house hacking
Hi,
We've been telling a family member about house hacking. I'm not sure it will work in the Bay Area as it is just so expensive here and the rents probably won't cover enough of the costs to an amount he can afford. However, assuming he could find a good deal that would work out, how does he get a loan? I did a house hack 2 years ago, but in a lower cost area with significantly more income etc., so I didn't run into this problem.
If a person wants an FHA loan and they are not a high earner with a large down payment, will the bank take the rental income into consideration as part of the loan. If you tell them the house hacking plans, will they see it as an investment property with higher rates and 25% down required?
Bonus points if anyone has done a house hack in the Bay Area recently and can share the experience.
Thanks
I dont believe FHA will take that future rental income and count it towards your DTI. A conventional loan will but I believe only up to 75% or could be lender dependant.
On the bright side, you dont have to tell your lender you will house hack a multi family nor would it change anything if you did, as long as its under 5 units, you are able to use the FHA loan on the property.
Lastly, depending on the lender, once you've lived there for 1-2 years and move out and fully rent it out, typically the lender will use that rent towards your DTI on the next property but you have to have the property rented out for 1-2 years.
Quote from @Sam Hudacek:It would be unlikely to get a home for under 1 million in this area, and there is no way he could come up with 250k down payment nor could he qualify for the loan with his own income, so does that mean he's out of luck unless he moves to somewhere like Ohio? Depending on the situation, I don't think it would be too hard to get rents totalling about 3500-4k per month.
I dont believe FHA will take that future rental income and count it towards your DTI. A conventional loan will but I believe only up to 75% or could be lender dependant.
Hey Emily, you'd get a loan just like you'd get any other mortgage. I hear your point about the HCOL in the Bay Area and that is certainly a struggle for many people. The way I understand it, if you are buying 2-4 unit with FHA you can and need to use the rents from the other units to offset the DTI. It can be tough to find these deals tho and single family is where many house hackers go. It's tough to use boarder income but recently mortgage guidelines have allowed the borrower to use rents from a ADU to offset the payment. Check with a loan officer on this but this could be a good option. Another viable option is to get a cosignor you can boost the income and purchase price.
Yes, I think his best option is to go the single family home route and rent out the other bedrooms. It sounds like we still have the problem of him qualifying for a loan unless we do something like you suggested in getting a cosigner. I am not really familiar with that. Is it where the other person is a backup for the bank to go after if there is a problem or is it that you are co-owners?. It can be tough to find these deals tho and single family is where many house hackers go. It's tough to use boarder income but recently mortgage guidelines have allowed the borrower to use rents from a ADU to offset the payment. Check with a loan officer on this but this could be a good option. Another viable option is to get a cosignor you can boost the income and purchase price.
Thanks for the thoughtful response.
i noticed your signature is a house hacking agent. That's fascinating. I didn't know agents got that specialized.