What qualifies for new Fannie Mae 5% Multifamily?

Question

Hello, I am looking to house hack near Tampa/St. Pete area and have noticed it is pretty hard to make cash flow let alone break even on multifamily properties out here. As a result I’ve been looking at houses with in-law suites and casitas that tend to be more affordable and give me a better chance of funding my mortgage each month. I was hoping to take advantage of the new Fannie Mae 5% down option for multifamily and was curious if certain in-law suite properties would technically qualify as multifamily so I could use that new loan option. I haven’t been able to find a clear definition anywhere. Any advice is greatly appreciated!

Bradon Grondel · Answer

Thank you for taking the time to reply. This is great information. I’ve noticed that getting a cash flowing live in house hack is incredibly difficult when running the numbers on all these properties, especially out here so that’s comforting to hear that I’m not the only one trying to find out that pencils out. The goal then is just to cut down my mortgage payment, which sounds great to me! I’ll reach out to him. Thanks again!

John K. · Answer

Hi Bradon,

Whether it's technically considered a single family with an in-law suite, or a 2 unit property, you can get a conventional loan with 5% down for either now. The rental income from the other unit can only be used to help you qualify in the case of being considered a 2 unit property. Feel free to reach out with any questions!

John

Ryan Thomson · Answer

@Bradon Grondel FHA just changed their rules and now allow you to count 75% of the market rent of an ADU as qualifying income. This should help in your strategy. I wouldn't rule out a 4 plex just because it doesn't cashflow though. We are seeing similar challenges with cash flow in Colorado Springs. HOWEVER, a 4plex can still be an amazing investment for a house hacker even with negative cashflow.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

Also, remember it is tough to cash flow when you only put 5% down on a property and are taking up one of the rentable units.

Raymond J. Rodrigues · Answer

You're most welcome! @Bradon Grondel@Josh Green

Raymond J. Rodrigues · Answer

Hi @Bradon Grondel, thanks for introducing yourself. Most people generally do not break even on having their rental income cover their living expenses in a live-in house hack these days, so asking for cash flow in addition to that might not be feasible until you move out of the property. There are certain circumstances where you do, but you’ll need a solid realtor to help you find those types of deals. When it comes to financing a property with an in-law suite, this is generally considered a single family property and will allow you to finance with 5% down payment. I’ve financed quite a few of these in the past. Conventional loans will not allow you to use the rental income from an ADU property to qualify as if it were a 2-4 unit property, but FHA loans will. There are specific requirements that need to be met in order for an ADU to be legally classified from a lenders standpoint. If you are concerned with having protection and not being able to hold your property in an LLC, get an umbrella insurance policy.

Side note- not sure who you’re working with as your real estate agent, but @Josh Green is the go-to investor/investor focused realtor in the area that has helped many clients of mine in the past successfully house hack. I recommend reaching out to him! He always provides solid advice, guidance and is also one of the best negotiators I have met when getting our clients the best deal. This is not a pitch.

Bradon Grondel · Answer

Thank you for that! Also, when getting into house hacking, do you know if there is a way to protect the asset with an LLC? I don’t imagine I can buy it through an LLC as it would be my primary residence and I would be purchasing it through a conventional residential loan - how do others protect their house hacked investments?

Christian Ehlers · Answer

I don't know that there was ever an issue with buying a single family with an in-law suite for 5% down conventional, unless it was maybe considered a duplex. I believe you are good to go with that plan