Using FHA Construction to House Hack?

Question

I am a complete rookie to the real estate scene, I am looking to house hack for my first residence out of college. I have enough saved for FHA loan down payment on a duplex up to 500k. After diligent searching there are ZERO duplexes for sale within an hours drive of my work place. I have heard there are FHA construction loans but that they are pretty restrictive and do not allow for multi unit construction. What are my options going forward?

Hudson Filippi · Answer

I am in northern Minnesota, I'm still roughly a year and a half away from graduating so I am just gathering info at this point. I appreciate the reply.

Jose Valdovinos · Answer

@Jonathan Klemm thank you for including me!

@Hudson Filippi Thank you for sharing your timeline! It's great that you're starting to gather information early. Renovation loans can be a fantastic tool when you're ready to explore your options. Feel free to reach out anytime with questions or when you're closer to making plans—I’m here to help!

Tim Swierczek · Answer

@Hudson Filippi What part of Northern MN do you live in now? Typically when people graduate they look for a job and move to the area of the job. If you stay in Northern Minnesota you could look to locate closer to Duluth which has a large supply of duplexes at prices much below $500K. Otherwise, you could network with a local Realtor to your area and see how many duplexes sell per year within your acceptable driving radius. You may also be able to start sending letters to duplex owners explaining who you are and that you want to own and live in a duplex, etc.  If you're in Northern MN, there is a very good chance that the cost to build a new duplex exceeds the resale value, which would be an awful idea to build a new one.  Reach out if you want to chat.

Jonathan Klemm · Answer

Hey hey @Hudson Filippi - Welcome to the BIggerPockets Community!

First off congrats for looking into this realy estate stuff at such an early age!  There's no doubt you'll find success over time!

You can 100% use an FHA-203k renovation loan on multi-unit properties up to 4 units.  You could also use a Fannie May Home style renovation loan which a conventional loan and require 5% down vs. FHA 3.5%.

You should talk with a lender like @Jose Valdovinos!  He is here in Chicago with me, but does loans across the country.  Where are you located?

Rick Albert · Answer

That isn't 100% true. You can convert a garage into an ADU. That's what I did. You just can't do new construction. It will likely depend on where you are looking.

Bryan Maddex · Answer

Hello @Hudson Filippi FHA does have a One Time Close construction loan that will allow you to build a home. Unfortunately, it cannot be used for a 2-4 family property, only single family properties. You should be able to find local builders that will finance the construction component of your new build, however!  They build, you do a standard FHA mortgage at closing once the home is completed. Most larger communities will have a Homebuilders Association, i would start networking to find a builder that can finance the construction. Step 1: Get preapproved for an FHA loan for the purchase price you are looking for.Step 2: Connect with builders until you find a few that will finance the construction of your home. Step 3: Compare build plans / specs to decide what you want to build. Some builders will purchase the land for you, some will want you to purchase the land. Step 4: Do a contract with the builder, order an appraisal to make sure the numbers work for the build, wait for the home to be built.Step 5: Close once the builder has a CO!

Rick Albert · Answer

At least with FHA 203(k), you cannot do ground up construction. It has to be an addition.

I would double check because maybe the workaround is reinforcing the garage and building above it.

We lived in our studio ADU for two years before we moved into the main house.

Best thing to do is talk to an experienced lender.

Hudson Filippi · Answer

So I could hypothetically include a studio apartment above the garage and rent out the main house and be within the law?

I should also note that the project would be ground up and the FHA loan would be a one-close construction to a permanent mortgage

Using FHA Construction to House Hack?

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