Financing options for Multifamily House Hack | FHA/Fannie Mae/LLC

St. Petersburg, Florida
House Hacking
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Financing options for Multifamily House Hack | FHA/Fannie Mae/LLC

Tim Tyrrell
Member since 2024 · 2 posts · 0 votes

I'm looking at the FHA and Fannie Mae loans for a quadplex in St. Petersburg. I would qualify for the FHA loan or the Fannie Mae loan as an individual. I have around 20K to put down myself along with another 60K from two independent investors, one family member and one friend, if necessary.


I'm wondering if it's possible to take advantage of the 3.5% FHA loan as an LLC that I create as a partnership with my investors, or if the loan needs to be in my name to qualify for the FHA loan? This would be my first home purchase, and I would move into one of the units after purchasing.

I don't see a reason why the 5% Fannie Mae loan would have issues with our LLC, but please correct me if I'm wrong.

If we can qualify for either loan as an LLC, is there one that you would prefer over the other? I read this post by Andrew Postell, so I'm aware of the basic differences re self sufficient/funding fee/MPI/etc -- but I wonder if there is another lens to view these loans through when there's a team of investors considering them. Appreciate the help and happy hunting!

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Raymond J. RodriguesBusiness Member
Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
2y

@Tim Tyrrell, if you are planning on ever transferring title of your property to an LLC in the future, it has to be with a conventional loan. FHA will not allow this. When it comes to buying a 2-4 unit property with 5% down conventional, the guidelines mandate that you have 5% of your own funds being contributed towards the purchase to meet down payment requirement. You are not allowed to receive what would be considered a gift in this case to meet the 5% down payment requirement. Your lender should have made you aware of this. There are ways to meet this down payment requirement on your own, but it does require getting a little bit creative, especially if you have "partners" helping out.

FHA does not have a minimum borrower contribution requirement of your own funds for down payment, but does have what's called the FHA self-sufficiency test, which will most likely not pass for a property in a town like St. Pete. This primarily leaves you only with being able to use a conventional loan. You are not able to close in the name of an LLC, at closing, with an FHA or Conventional loan. Happy to answer any other questions that you may have.

If you are working with a realtor, but would like to work with someone that is more investor focused, reach out to @Josh Green. He has assisted quite a few of my clients with their house hack needs in the areas that you are looking to buy.

Always open to discussing further. 

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  • Mike Scaccia
    Member since 2022 · 33 posts · 31 votes
    2y

    Hey Tim!

    Congrats on beginning your journey into real estate! House Hacking is an incredible tool to get started. 

    FHA is definitely one route you can go, in the current market with elevated home prices, and interest rates its alot more difficult to utilize and fha loan because with any 3-4 unit property you will need to pass what is called "self sufficiency test" essentially fha has a rule for any 3-4 unit property that requires 75% of the projected rental income to cover the total mortgage payment in order to qualify for financing. In most markets the rents from the other units aren't enough to meet that criteria. That said, it is possible! FHA will not allow you to close a loan within an entity it will need to be under the individuals name.


    As it pertains to the conventional 5% down with fannie mae or freddie mac you can do the same house hacking with only 1.5% more down. With this type of financing you won't need to worry about self sufficiency or any income restrictions. Same as FHA though where you will not be able to close the loan within your LLC or other entity. It may be possible however to VEST TITLE within the LLC. The mortgage conveys who owns the debt while title conveys ownership rights in the property!


    please feel free to shoot me a private message if you wanted to connect further! 

    2Reply
  • Raymond J. RodriguesBusiness Member
    Lender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
    2y

    @Tim Tyrrell, if you are planning on ever transferring title of your property to an LLC in the future, it has to be with a conventional loan. FHA will not allow this. When it comes to buying a 2-4 unit property with 5% down conventional, the guidelines mandate that you have 5% of your own funds being contributed towards the purchase to meet down payment requirement. You are not allowed to receive what would be considered a gift in this case to meet the 5% down payment requirement. Your lender should have made you aware of this. There are ways to meet this down payment requirement on your own, but it does require getting a little bit creative, especially if you have "partners" helping out.

    FHA does not have a minimum borrower contribution requirement of your own funds for down payment, but does have what's called the FHA self-sufficiency test, which will most likely not pass for a property in a town like St. Pete. This primarily leaves you only with being able to use a conventional loan. You are not able to close in the name of an LLC, at closing, with an FHA or Conventional loan. Happy to answer any other questions that you may have.

    If you are working with a realtor, but would like to work with someone that is more investor focused, reach out to @Josh Green. He has assisted quite a few of my clients with their house hack needs in the areas that you are looking to buy.

    Always open to discussing further. 

    [email protected]619-456-8311
    Helm Mortgage Corp.5126 Reviews
    WebsiteView Page
    3Reply
  • Josh GreenBusiness Member
    Realtor · Tampa/St Pete/Clearwater/Bradenton · Member since 2020 · 396 posts · 353 votes
    2y
    Quote from @Tim Tyrrell:

    I'm looking at the FHA and Fannie Mae loans for a quadplex in St. Petersburg. I would qualify for the FHA loan or the Fannie Mae loan as an individual. I have around 20K to put down myself along with another 60K from two independent investors, one family member and one friend, if necessary.


    I'm wondering if it's possible to take advantage of the 3.5% FHA loan as an LLC that I create as a partnership with my investors, or if the loan needs to be in my name to qualify for the FHA loan? This would be my first home purchase, and I would move into one of the units after purchasing.

    I don't see a reason why the 5% Fannie Mae loan would have issues with our LLC, but please correct me if I'm wrong.

    If we can qualify for either loan as an LLC, is there one that you would prefer over the other? I read this post by Andrew Postell, so I'm aware of the basic differences re self sufficient/funding fee/MPI/etc -- but I wonder if there is another lens to view these loans through when there's a team of investors considering them. Appreciate the help and happy hunting!

    This is a great question and has been answered well from the above. Now, the easy answer is if that MFR you're looking at is cheap enough you can cover the down payment/CC's yourself then just use the other funds if even needed to cover updates/upgrades to the property outside of the transaction. As mentioned above, on one hand, FHA will be tough in a scenario involving even moderate rehab to a property as well as the whole self-sufficiency test when your LTV is so high in today's market. However, on the other hand, this is one of the few times you can actually lock-in a MFR with FHA in the past couple of years due to the competition being high. It's also very likely that in the coming weeks and months the market picks up again to that point.

    Assuming the price isn't dirt cheap, the only other two ideas would be: 1) if the seller is motivated and willing to do a form of creative finance (unlikely), or 2) @Raymond J. Rodrigues let me know if i'm serving too far into the lender sphere here but maybe, just maybe, if the funds were "gifted" to a family member and then "gifted" to the buyer it could work.  Though I assume there's some seasoning potentially needed for that or it might be too easy to trace back 2 levels and sniff that out?

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  • Benjamin Sulka
    Cleveland, OH · Member since 2022 · 826 posts · 578 votes
    2y

    Tim, 

    You got some fantastic answers above.

    Just wanted to reiterate the FHA self-sufficiency test for 3-4 unit properties. Super difficult to do in a high interest rate environment when you're only putting 3.5% down.

    1Reply
  • Tim Tyrrell
    OP
    Member since 2024 · 2 posts · 0 votes
    2y

    Really appreciate all this great info. It looks like conventional will work best for my needs. As far as funds, I can do some research on my own to understand this gifting component and how to get creative. I appreciate y’all giving me some ideas I can look further into.

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