All Forum Posts by: Matt Vezina

I bought my first investment with 5% down on an owner occupied three unit, that amount+ closing costs pinched me for a little while to save while still paying rent but it wasn't too bad. So for me lack of prior ownership didn't really make a difference, although I would love to have the flexibility that sitting on an SFH with a lot of equity gives. Would be able to put together BRRRR stuff easier if I could fund with a HELOC.

@Juan Alvarez have to double check with a lender, the official language is something like "may not have ownership interest in other residential property" rather than "first time buyer."  But there are a few exemptions to the rule and I think inheritance may be one of them. 

If you aren't over the income limits I'd strongly suggest looking at the Freddie Mac Home Possible loan over the FHA. That's what I used to buy my three unit house hack, had never heard of it until the originator suggested it and glad I went that way. as low as 5% down on 2-4 unit, lower mortgage insurance premium and no upfront insurance payment at closing, and it's a conventional loan so stronger offer and less red tape than the FHA. And, the Home Possible does have a first time buyer requirement where the FHA doesn't so use it first if you can. Using a local lender may be a smoother process than a national name like Bank of America.

I had some difficulty getting a buyer's agent when I was searching and ended up buying my 3 unit through the listing agent as a few others have suggested.  Seems to be a contentious topic but it worked out for me.  I was confident in my numbers from all the education I've gotten here and understood exactly who the listing agent works for and what information needs to be withheld accordingly so I thought why waste any more time trying to get a buyer's agent to contact me back.   Definitely something for each first time buyer to decide for themselves though, are you comfortable negotiating with nobody else on your side of the table.

With your credit score check out the Freddie Mac Home Possible loan if aren't over the income limits. 5% down on 2-4 unit, lower insurance premiums and no upfront payment vs. FHA plus the insurance automatically cancels after 10 years of timely payments, and it's a conventional loan so stronger offer and none of the FHA red tape. House hacking is great! I live in a three unit with the two tenants paying my mortgage and utilities.

The Freddie Mac Home Possible is conventional and allows 5% down on 2-4 unit however it does have a first time buyer requirement unlike the FHA.

I would definitely want a signed lease at closing if you decide to keep him.  Vacant at closing is definitely cleaner, then again if you already know the guy takes care of his place and he'll agree to market rent you could be booting someone who has potential to be a good long term tenant.  And his family may be reluctant to sign that addendum if you already have an accepted offer that doesn't mention him vacating. 

Either way you go have it resolved at closing, I just went through this on a house hack where one tenant had to leave for me to occupy and it took a lot of pressure off my end knowing that I don't have to handle that situation myself after closing.  

Wish I didn't have to make this thread but I find myself in the position of a lender and insurance broker both telling me the other is wrong so I'm hoping for some third party advice on this. 

I am far along under contract on a three unit with inspection waived, all EMD submitted and on track to close August 3. I found out late in the game that the property is in the 1% annual chance zone so flood coverage is required.

I thought the premiums on the flood insurance were going to be reasonable because I'm only required to cover the unpaid principal balance on the loan.   That amount is $85,500 and I got flood quotes for $1100-1400 depending on deductible.  More than I wanted to pay but doable with the numbers.   Then today the lender notified me that they require both the flood and homeowner's policy to have the same coverage amounts.  The current rebuild cost estimate on the house is $311,000 which is higher than coverage is even available from the NFIP.  When the insurance broker runs flood numbers at the $250,000 NFIP maximum the premium is $3000 a year, a total non starter and still doesn't even solve the problem of the coverage not being the same. 

The lender is telling me that I just need to drop the homeowner's coverage to $85,500 to match the flood and everything will be fine.  Of course that leaves me with nothing other than a free and clear pile of ashes if my primary residence burns down and I only had coverage to pay off the note.  The insurance broker says he cannot write a replacement policy for less than 100% of the rebuild estimate, and even an ACV policy does not allow him go to lower than something like 80% of the rebuild cost.  So according to him the only option I have is to max out flood coverage to match because the homeowner's cant go that low.   He also said he has never heard of a lender requiring both amounts to be the same and suggested I shop for a different one.  That is tough to do at this stage as I am using a branded Freddie Mac product that allows 5% down on a three unit so I can't just take this to another local bank and get the same terms.  

Appreciate any advice on how to proceed, I don't want this deal to fall apart but it sure will if the alternative is paying $3,000 a year in flood insurance.  I tend to lean with the insurance broker's side on this, if the lender's maximum exposure of $85,500 is covered by both homeowner's and flood insurance I don't see why it matters if one policy has a higher upper limit than the other.  Help! 

Hey Travis, sounds like a good start using that equity for a second property.  A few other things to consider:

-If your plan is to mortgage the second property you should verify beforehand that the refinance on your current primary residence won't push your debt to Income ratio too high to get approval on the new mortgage.  Someone correct me on this if I'm wrong but in your situation I don't believe a lender will count the potential rental income of your current primary residence if you're still living there while applying for a mortgage on the second.  

-You mentioned this is a rehab property, depending on the extent of rehab it needs you may find the property is not eligible for some mortgage products.  What kind of renovations are we talking about?

I used to live near a town with a few of the rental heavy streets in the "1% annual chance" zone, looked at a few properties there. It doesn't seem to affect rent amounts at all, the average tenant probably isn't pulling the FEMA maps when shopping around. If you finance the property you must purchase flood insurance, rarely or not doesn't matter if it's in the zone.