House hack, then what next?

Question

Let's say I house hack by putting 3.5% down through an FHA loan. I live in the house for one year either for free or with reduced living expenses. Then what? Do I have to sell the house before I get another one? Can I only have one FHA loan at a time? I know I should just be focused on house-hacking my first property because I haven't done it yet, but what should the next step look like?

Andrew Postell · Answer

@Anthony DelVecchio you don't have to sell the property after you live there for one year.  You can continue to keep it.  You could get another FHA loan in theory, but there's some rules to having 2 FHA loans, however there are plenty of other options that allow 5% down that aren't FHA loans.  So, you will still have good choices when you move out.  No need to sell.  Plenty of people just move out of their homes after 1-2 years and buy another property.  It's a great technique when you can do it.

Jonah Hartsburg · Answer

I'm a strong advocate for house hacking when it fits the right scenario! We spent four years in a duplex, maintaining it in our rental portfolio as we transitioned to another house hack residence with an additional accessory dwelling unit-type house next door.

Navigating the intricacies of FHA loans in competitive real estate markets can be daunting, given stringent home requirements and more complex processes. It's not uncommon for buyers using FHA products to face rejected offers or the need to significantly sweeten deals to compete with those favoring conventional loans. As a viable alternative to explore with a lender, consider the advantages of a 5% down conventional loan, or even less for qualifying first-time homebuyers, which often comes with less stringent property condition requirements. If you're not planning to live in the property long-term, I'd suggest prioritizing the property's standalone investment potential during evaluation, regardless of its role in a house-hack scenario. If positive cash flow without your residence is achievable, the property could serve as a lasting investment post-move. However, selling within a year may result in minimal mortgage paydown, given the substantial transaction costs. In such cases, the property should ideally function as a flip, benefiting from either market appreciation or improvements ("forced appreciation") to maximize its value.

Rick Albert · Answer

It all depends on your goals.

I house hacked a condo, did a HELOC and FHA 203(k) to house hack the second one. I then kept the condo rented for four years and then sold it and did a 1031 Exchange to properties out of state.

I would house hack and reevaluate. If you are okay with the lifestyle, do it again. It is one active FHA loan per borrower so you would have to refi out.

Christian Ehlers · Answer

After househacking the first property there's really no point in selling after only 1 year unless you are in severe financial trouble at that point. You can only have 1 FHA loan in your name at a time but you could buy another property after 1-2 years with a conventional 5% down loan and househack that as well and you can use a portion of the rental income to help you qualify for the payment.

Don't overthink it, househack if you can to start, keep educating yourself and saving money and you'll figure out how to buy the next properties afterwards.

Anthony Swain · Answer

@Anthony DelVecchio Hey!

Fellow house hacker and Anthony here haha.

Great question! I feel like this is one of the most commonly asked things for house hacking, "What is the next step". It really is for you to decide. What are your goals? What was your house hacking experience?

If you plan on rinse and repeating the high leverage house hacks (low down payment FHA), then you can always refinance the FHA into a conventional and use your FHA loan again for the next property. You can keep the FHA loan and use a conventional for your next. You have many options, so it is important to connect with a knowledgeable lender to give you sound information on your options.

You don't necessarily need to sell the property after one year. You can keep it, then rent out the entire property when you move out. You can decide to stay in the property longer. This may benefit you to stay at least 2 years to benefit from the 2 of 5 tax benefit.

As others have mentioned, in competitive markets many sellers are not interested in FHA offers, because of the stricter requirements. It may be more practical to use the 5% conventional loan product.

I'd suggest to connect with a local investor friendly agent and make a game plan to get your first house hack. You got this!

-Ant

Michael Hinckley · Answer

You can only have 1 FHA loan. You need to have the income from the property after expenses have sufficient income to cover escrow payment and expenses to break even or to cash flow a little bit.

Then to qualify for the next house hack you will use conventional loan. You will either qualify for the next home using more personal income to offset the 75% of the rental income that the lender will qualify or buy a deal that cash flows about 125% of the expenses so that your income does not have additional negative Debt to income.

I have one house hack, buying my second one. The first cash flows enough to actually add $1000 to my income to help me qualify for the next one. The next home I am also using ADU qualified income from the basement to help me to qualify for the home.

Point: there are creative ways to qualify for the next home, make sure you buy a good cash flowing deal, or that your income is high enough to buy a second property and not get stuck on number 1.

Sarita Scherpereel · Answer

You can refinance out of the FHA loan or use a 5% down loan product. If you have enough equity in the property or if the market has appreciated enough. Rates are high right now, so unless you have something immediately ready it might make more sense to hold. Until you have something picked out. Then I would HELOC (if you have the equity) into the next house hack.

Alan Asriants · Answer

You definitely don't have to sell the house in order to go ahead and buy another house hack in the future.

Conventional loan programs now allow you to buy 2 to 4 unit properties with only 5% down. This is good because you don't have to refinance your FHA loan once you have lived in the property for a year. (Technically, you can't have two FHA mortgages out at the same time, but there are guidelines that can allow you to do so as someone else mentioned in this post.) So you can go ahead by that first house with FHA and then buy the second one using a conventional mortgage.

don't worry so much about the second property yet.  get the ball rolling with the first one and trust me you'll find a way to get that second property. good luck

Wale Lawal · Answer

@Anthony DelVecchio

To house hack a property, rent it out after the first year, obtain another FHA loan if necessary, refinance the FHA loan into a conventional loan, use a conventional loan for subsequent properties, and repeat the process to acquire additional properties, diversify financing methods, consider different property types, leverage equity, and network with real estate professionals.Good luck!

Carlos Scarpero · Answer

Not necessarily. You could rent it out but if you house hack again it needs to be at least 100 miles away from the current residence per FHA guidelines. You can always move!Or just go buy properties as an investor

House hack, then what next?

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