Wrapping up first house hack, Next house hack Finance troubles.

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Wrapping up first house hack, Next house hack Finance troubles.

Collin Wallace Chesnut
Rental Property Investor · Des Moines, IA · Member since 2019 · 7 posts · 6 votes

Hello BP community, Looking for some traction on a problem I'm running into.  

Last year June 18th 2021, I purchased a 4 plex with a FHA Loan to house hack. As we are approaching this upcoming year I was wanting to do the same thing and though it was possible to buy another 3-4 unit property as a primary residence and get financing as a convential loan with the ability to put down as low to 5%.

Asking around to lenders thats does not appear to be the case and taking to 3 different lenders they have all wanted 25% down on a 3-4 unit property. If I go down to a duplex I only need 15% down. 

Wanted to reachout tho to see if any folks haver ever been in this position before and what other options there where. Yes, I can buy a SFH home for 5% down and get a convential loan and after talking to 3 lenders that migth be my best option next, but wanted to see what other Ideas where out there or how I can buy another Multifamily with low money down. Also with the climb in interest rates I'm not looking to refinance out of my FHA loan at this time.

Let me know your thoughts! Thanks!

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Kevin Romines
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
4y

You can only have 1 FHA loan out at a time, unless the new purchase is over 100 miles away from your existing property. FHA is the best loan you can use when buying a 2-4 unit with a low down payment. That said, you will need to refinance off FHA to clear your 1 FHA slot to then do the new purchase with FHA again.

You can get a refinance up to 95% LTV only on Home Possible fort 1-4 units, however the caveat is that there are income limits, so you will need to be sure you are within those limits. Also Home Possible will only allow 1 other financed property at the time that you purchase the 2nd property. You wont be able to use Home Possible in any future purchases.

I suggest you refinance to Home Possible if you can, if not, you will need to wait until you have 25% equity to refinance to a conventional loan or 20% equity to refinance to a Non-QM loan. At that point, you can buy another 2-4 unit with FHA.

I hope this helps?

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  • Logan McKay Zylstra
    Realtor · Provo, UT · Member since 2020 · 374 posts · 270 votes
    4y

    I would talk to 2 or 3 more lenders. I have personally never heard of this. Is not being able to qualify due to your DTI?

    0Reply
  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    4y

    You can only have 1 FHA loan out at a time, unless the new purchase is over 100 miles away from your existing property. FHA is the best loan you can use when buying a 2-4 unit with a low down payment. That said, you will need to refinance off FHA to clear your 1 FHA slot to then do the new purchase with FHA again.

    You can get a refinance up to 95% LTV only on Home Possible fort 1-4 units, however the caveat is that there are income limits, so you will need to be sure you are within those limits. Also Home Possible will only allow 1 other financed property at the time that you purchase the 2nd property. You wont be able to use Home Possible in any future purchases.

    I suggest you refinance to Home Possible if you can, if not, you will need to wait until you have 25% equity to refinance to a conventional loan or 20% equity to refinance to a Non-QM loan. At that point, you can buy another 2-4 unit with FHA.

    I hope this helps?

    2Reply
  • Collin Wallace Chesnut
    OP
    Rental Property Investor · Des Moines, IA · Member since 2019 · 7 posts · 6 votes
    4y

    Hi Logan,  yea that is the plan (for now) . Have a call with a lender this afternoon and will try to dial in on the specifics to see what limitations I'm not meeintg. But by the sounds of talking to the other 3 lenders that appeard to be the norm on the second Multi family purchase. which sorta threw me for a loop. 

    0Reply
  • Alex BreshearsBusiness Member
    Lender · Springfield, MO · Member since 2020 · 351 posts · 504 votes
    4y

    Hi Collin! Another idea you might look into is truly look for that single family residence, but depending on where you are in the country, you can look for something that possibly has an additional mother in law suite, apartment above the garage, maybe a smaller finished "she-shed" kind of thing that you could then rent out as a short term rental (airbnb). I wouldn't go in with that information to the lender as you are buying this in their eyes as your primary residence. So it would go off your income, credit score and asset levels. The income you make off turning that additional space into rentable space would not be considered since you are obtaining a primary residence loan. If you are thinking of going this route, make sure you check both any HOA rules and local municipalities limitations or outright banning of short term rentals before you decide to buy in that area.

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    4y

    @Collin Wallace Chesnut- most ( if not all ) lenders will use the conventional guidelines you mention ....15% down for an owner occupied 2 plex and 25% down for an owner occupied 3-4 plex....fyi - there are some conventional programs that will allow as little as 3% down on an owner occupied SFH purchase ....you might analyze the FHA refinance option .. depending on what the value is now and what the present rate is ...you might be able to refinance and elimiante the mtg ins and have the resulting overall payment be close or even lower than what the payment is now ....and if you can free up the FHA loan ..then you have an loan option for the next place

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  • Nick Riccio
    Lender · Boston, MA · Member since 2018 · 171 posts · 137 votes
    4y

    @Collin Wallace Chesnut The input you already received is very solid. To add, I'd say you're certainly not alone on this. I run into this with my clients a lot, and on my own house hacks. It's something that isn't talked about enough.

    General road map if possible: Buy with FHA, stabilize, after 12mos try to refinance into a conventional product - or investment loan. Purchase again with FHA. Caveat is, FHA won't allow you to use the income from the unit you are departing from, so it's something to be aware of from a DTI perspective.

    @Kevin Romines is spot-on with HomePossible, although it can be a tough "box" to fit-in. I'd also look into your local state programs. Here in Massachusetts - we have a state program that allows for 95% financing conventional for 1-4 units. I find a lot of states have similar programs. 

    1Reply
  • Jared HottleBusiness Member
    Real Estate Agent · Cedar falls IA Waterloo, IA · Member since 2020 · 902 posts · 549 votes
    4y

    Has the 4 plex appreciated enough that you would have equity in it to a point that the bank would not need you to come with as much for a downpayment on refinance?

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  • Collin Wallace Chesnut
    OP
    Rental Property Investor · Des Moines, IA · Member since 2019 · 7 posts · 6 votes
    4y
    0Reply
  • Paul Camuto
    Real Estate Coach · Robbinsville, NJ · Member since 2017 · 185 posts · 99 votes
    4y

    Line of credit against the property that you have? Buy individual properties to create a virtual multi-family unit? 

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