All Forum Posts by: Sasha Mohammed

Hi Bruce, i'll start by saying i'm a mortgage person, so please understand the context in which my response is coming from. 

you'd need to create CC&Rs/bylaws and establish an HOA in order to do this. You'd also need to establish a budget, and secure a master insurance policy. i THINK you need to do these things before reaching out to your municipality to have it converted officially with the county or city but they would be the first ask for steps in order.

i will add, this would make financing on these units a bit challenging, as in the mortgage world, at least initially, they would be considered "non-warrantable" condos. Tons of rules here which make a condo association "warrantable" vs "non-warrantable" but just one on the list: one owner owning the majority of the units alone will typically make them non-warrantable. This will affect things like required down payment, rates, and even which lending institutions would be willing to finance. 

i encourage you to look up warrantability for financing just so that you don't have surprisses when your 20% down buyer cannot finance that way. That said, I've been seeing the TIC (tenants in common) becoming a popular alternative to converting to condos. may want to look into that as well.

none of this is intended to discourage you from moving forward, just some food for thought. 

Hope this was helpful.

 LOVE to see such thorough and accurate responses! good work, @Patrick Roberts

I'll also add that on 3 and 4 unit FHA, there is an added guideline and self-sufficiency test. The property must be able to self-sustain from the rents received if you are financing using an FHA loan (rents must be able to cover 100% of the PITIMI). this does not apply to 2 unit, and I'm finding that some lenders will use all units for this test (assigning a rent value to the owner occ unit) and others will only use the non-occupied units for this test. its a hurdle to be aware of if you intend to buy MF using FHA.

I don't believe you can omit the payment on this one unless the person making the payments is on the current mortgage. But I agree, seller's best bet is to buy using a conventional loan if they can qualify. 

BP has great tools, I'm pretty sure there's a list of us on here somewhere. Our team is called Investor Property Loan, feel free to check us out. Always happy to help! 

ok, yeah, you can do that too (get a DSCR loan without owning a primary). MOST DSCR lenders will WANT you to own your primary, but not all of them require it.

there's no name per-say on renting room by room. house hacking kind of refers to buying a house/ owning a house and then renting the rooms out (i do this in my primary). The more official terminology in the mortgage world would be "boarders" not tenants, so their rents would be "boarder income" which most lenders wont let you use for qualifying. But i digress, this paragraph is more related to consumer lending.

DSCR loans are business purpose loans, so they dont usually look at your personal income anyway. But they also typically wont' look at the rents on a room-by-room basis. IMO, this is mainly because if they had to foreclose, no lender wants to mess around with that level of property management.

That doesnt mean you can't do a DSCR loan if you are renting each room out individually. you'll just want to set it up correctly (one lease for example would be helpful), and then make sure the numbers align from a market-rent standpoint. OR, find a lender that is ok going below 1.0 DSCR, OR get creative... maybe a 40 year, or IO options.... or no-ratio/ no DSCR which is out there but higher rates :)

@Kamal Martin maybe "house hacking" wasn't the right term.... but correct me if i'm wrong, are you referring to renting the property room-by-room?

There are a TON of people who do this and utilize DSCR loans, specifically i see it in college towns, as the property cash-flows beautifully this way.

Unfortunately, DSCR lenders are more concerned with market rent, and even if you were to provide 6 leases for one property, one for each room, adding up to $10k/mo in rental income, they wont underwrite it that way.

I usually recommend my clients give me one lease for the entire property in this scenario, it can have everyone's name on it, and the actual rent amounts... but the lender will go off the LESSER of the two - lease agreement vs market rent from the appraiser. 

That said, you'll get chopped down by the market-rent component. 

There are lenders out there, though, that do not look at DSCR, go negative DSCR, or go no-ratio. If the property is only cash-flow positive w/ room-by-room rents, these may be the better option for your scenario.

@Laura Shinkle great advice all around in this response!

@Ben Berg, welcome to BP and great work securing your house hack! ive been doing this house hack for a long while (over a decade now) and have certainly learned a thing or two. The first being - don't bring your friends or family into the mix :)

Since it sounds like you're pretty solidified in your friend moving in, and it could be a good first roomie, so just to get your feet wet... i'll double down on Laura's advice - do a lease, for the legalities, but i also highly recommend some sort of written (we call it a) Room Mate Agreement. This outlines things like guest/ overnight guest policy, cleanliness standards, roomie/tenant vs roomie/ landlord responsibilities... I try to not have a lot of "rules", but writing out some expectations can go a long way in resolving conflicts down the road and hopefully not ruining relationships/ friendships.

happy to go over more specifics with you if you'd like! Enjoy the ride, its a fun one!

To add to @Patrick Roberts post - this loan type will require you to qualify with income and liabilities = DTI ratio, which will include the rents you pay to your NV home. But it is the lowest down payment option, and likely the lowest rate option as well.

one tidbit - condos don't usually like the STR piece, so make sure to do your DD in whatever area you're looking to buy in before puling the trigger.

hi @Alvin Taveras

Mortgage Broker here, i've been referring clients out to Credit Unions for their HELOCs. we have a handful of lenders that can do them, but i'm finding the juice is not worth the squeeze in the broker/ wholesale world. Clients are getting much better terms using their local credit union, and generally really appreciate being the good advice and direction. Unless someone specifically wants to work with us, they have a tough scenario in terms of qualifying, extenuating circumstances... so on and so forth.... CU and local bank is the way to go for that product specifically. 

just don't do a lease. as others have mentioned, this forces the buyer of the property to take over the lease (if its even allowed/ they qualify) and it certainly does make the property a little tougher to sell. 

i'm also doing a house hack, and here in CA, its made a world of difference for me. the bulk of our energy usage is in the summer when we want to run the a/c. my bill stays a constant $228/mo (i pocketed the tax credit and simply financed the panels after that grace period). instead of getting an $800 bill in the summer months, we run the a/c at a constant temperature 24/7 on auto, stay comfortable, and i typically get a little bit coming back at the end of the year. don't expect to pocket this "little bit back" by being conservative with your useage, it sort of is a use-it-or-lose-it situation... i think i got $54 back this year. But just in terms of my face not changing when someone is too warm and wants to run the a/c or drop the temperature... its been fantastic. For context, 4 adults and all our tech living here, we were running about $250/mo on average per month for electricity anyway... outside of summer a/c useage. so all in all, its saved me about $2k a year if i had to guesstimate for you (it stays hot here through October usually).

i still owe about $23k on mine, have no intentions of selling the house. but if i decide to move out and rent the whole house out, our market would support higher rent in exchange for no electricity bill. i think you just need to decide what YOUR main benefit of having the panels are. for me it was for the house-hack, and consistent billing, despite the usage. if its strictly for property value increase, i'm not sure it would be worth it, pending your specific market.