3.5% Down FHA House Hack - What's Next?

Question

BP Community,

I'm excited to say that my first Duplex just passed FHA appraisal and I'll be closing in June. Property is a 3bd/1.5 bath / 2bd/1.5 bath 2-floor side-by-side where tenants have lived for 30 and 20 years. We will be keeping tenants on the 2 bedroom side and living in and updating the 3 bedroom side with the goal of buying our second house hack next year.

My question: How do you finance the second property? While purchasing this duplex, I found out that you can't do a conventional mortgage with 5% down on anything larger than a single family, and you can't have more than one FHA. I'm thinking I'll need to start hustling to find a seller financing deal or private money, but wondering if there are other financing options. I read Craig Curelop's House Hacking Strategy, and I don't think he mentioned it.

Thank you in advance!

- Nick

Nick Scannell · Answer

Thank you for the post, Ryan!

That totally makes sense, and I think the refinance out of the FHA will be possible fairly quickly given the fact there's quite a bit of Forced Equity planned that will increase the value of the property. The duplex is a great start on the Spectrum of Comfort for House Hacking, but it's very possible after we do this that we will be ready to jump into a single family househack.

Ryan Thomson · Answer

@Nick Scannell I love that you are thinking about the next one already. Here are two options:

1. Wait until you can refinace out of that FHA home and get another duplex at that point.

2. Buy a single-family home with 5% down and convert a garage or a basement into another "unit"

Paul De Luca · Answer

Interesting, I haven't heard of that product before. If you want to connect with a lender that offers a 10% down ARM though, let me know.

Andrew Postell · Answer

@Nick Scannell congratulations on making that first step.  I started out house hacking and it's amazing to think of where I am today.  Would certainly recommend it to anyone if they have the ability to do so.

Some comments here based on what you stated:

1. You can ABSOLUTELY have 2 FHA loans.  There are some rules to it - but it is possible.

2. Your commitment is to live in your property for 1 year.  Then you can go out an buy another home.  However, there are some tax benefits to occupying it for 2 years.  Just something to think about for later.

3. There's nothing wrong with your second property being a single family home.  You can certainly be financially independent with either real estate class.  Sometimes we have to just take what we can get.  As long as you continue to grow, you'll be fine.

4. House hacking has many benefits.  One of them being your housing expense is lower.  So make sure you are saving that money accordingly.  Most very successful real estate investors live BELOW their means.  Once you have 8-10 properties you'll have to leave $75,000 - $100k in the bank just to cover your emergencies.  Get into the habit of saving money now.  Cash is still king.

Anyways, hope some of these help in some way.  Thanks!

Nick Scannell · Answer

Thanks for the post, Andrew! It's definitely awesome to hear the success that others in the BP community have had with house hacking. Every post like this encourages me to keep up with it!

1. Thanks! I'll definitely dig into the rules more!

2. I definitely knew about 2 of the last 5 rule of capital gains if I decided to sell, but I'll have to dig into more. I plan to read the tax strategies BP book soon (I have a lot of the BP books on my shelf to read)!

3. Great idea on single family. On the comfort spectrum of house hacking, my fiancee and I prefer separate units, but I could always consider doing a live-in flip for a second property if I don't find a house hack!

4. I 100% agree! I learned this a little later than I would have preferred (then again, who doesn't feel that way). I'm currently on a 60/40 spending-to-saving/investing ratio and working to get to 50/50. On the bright side, I'm pretty early in my career and it's fairly easy to maintain my lifestyle and put any raises/bonuses towards savings/investing.

P.S. I had a really good time reading and responding. Thanks for being a part of the BP community!

Gabriel Hidalgo · Answer

Hey Nick,

Congratulations! What an exciting time. Looking for seller financing for your next deal is a good idea, but what might make the process easier is if you have a partner or a couple lined up that would want to work with you. The partner could help with the down payment and repair costs, and you could manage the whole deal. A 50/50 split would still be suitable. Make sure to get all the roles each of you will be playing down on a contract when the whole thing goes through. Again, congratulations!

Account Closed · Answer

Depending on how significant the updates you're doing are, you could consider refinancing if it can appraise for higher.

Rick Albert · Answer

There are a few ways to do it. It comes down to your level of risk and financial situation.

When I bought my first house hack (fixer condo), I refinanced to get rid of the PMI. Then later on I did a HELOC and used that as my down payment for the second house hack.

With that second house hack, I did the FHA 203(k) loan and converted my garage into an ADU (and did major renovations and an addition to the main house). The construction loan paid for most of it.

Good luck!

Sonny Christopher · Answer

Just another thought- just because its single family house doesnt mean it cant have a secondary living space that can be rented out.

As already mentioned you can get another FHA loan but if you were to go the conventional 5% down route you could look for a single family home that has a basement or mother-in-law suite that could be made in to a secondary living area and rent that out so it would function just like a duplex. Just make sure that you can access the second unit from inside the house. If you have to go outside to access it, you may have issues with appraisers seeing it as a multi-family vs a SFH with MIL suite.

3.5% Down FHA House Hack - What's Next?

Most Popular Reply