All Forum Posts by: Ellie Narie

@Ellie Narie USDA will not loan on an income earning property, regardless if they know about it upfront or after the fact. Yes, they would absolutely frown on you adding multiple kitchens and/or multiple entrances. As quickly as they issued that loan they can invoke the Acceleration Clause and you would be required to pay it off (refinance it) During the loan process you will sign several forms stating you understand the program and it's parameters. Please don't attempt to commit any kind of fraud with an FHA or USDA loan, it isn't worth it. There is also a fee for paying off the loan within a certain amount of time. It decreases after each year but the point of a USDA loan is to live in it as your primary residence. The other thing you need to consider is, will there be any comps after you're finished with the house. If you have to refinance you need to consider that because you will struggle to find a lender that will lend money on basically a non-conforming property with nothing similar surrounding it. I get your idea, I live in a small town too with very few multi-family properties and it's a great vision but you might have to start out with a partner who would give you the cash to do what you want to do.

Hmm. Well, the land that I have in mind allows for multi family buildings. Should I just go with FHA instead? I contacted an FHA construction lender and he said that I would be allowed to build multi family with an fha construction loan.

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Does anyone know much about USDA Direct loans? Let's say I have a low enough income to qualify, and want to use it for construction. Here are some questions:

1. I know that I can't build an "official" multi family home. However, what is defined as multi family according to USDA? If I just build a house that sort of looks like it could be multi family, such as, a house that is split into two, but doesn't have an additional range (still has an additional fridge and sink), would USDA be okay with this? For example, think of a "mirror-like" duplex, but remove the range from the one of the "kitchens" (still have a fridge and sink in both "kitchens"), and add a door that connects the two units, that way you can say that it's still a part of your house. But still have two entrances. Would USDA allow such a house? If not, what are some suggestions on how to make the house USDA-friendly, while still sort of separating it?

2. Does USDA Direct allow you to rent rooms in your house? What about airbnbing the rooms in your house? Of course, you will still occupy your house.

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Originally posted by @Walter Key:

Those DTI ratios BOTH have to be met. So, if you have ZERO debt, they will approve you for whichever ratio is less. Example, if you have a $5,000 income, 29% house max is $1450/MO. Now, 41% TOTAL DTI would be $2050/MO. They'll approve you for a mortgage with a payment of no more than $1450/MO.

Let's say you had a car payment, credit cards, etc that equaled $1,500/MO. Your $1450/MO housing DTI PLUS the $1,500/MO in consumer debt would put your Total DTI well over 41% ($1,450+$1,500=$2,950 or 59% total DTI), so they would reduce the amount of mortgage approved to keep you under that 41% total DTI. Make sense?

Makes sense, thank you.

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Originally posted by @Anthony Dooley:

@Ellie Narie no matter what your income is, the 29 relates to that. The 41% relates to your debt, which you do not have. The USDA allows you to buy with 100% financing. This is great if you live in a rapidly appreciating market. However, if the value of the property goes down 20%, you will be upside down by 20% because you have zero equity the day you buy. Putting money down insulates you from that. I am not a fan of USDA or VA loans for that reason. Unless it is a fix and flip, then maybe. If you take the down payment assistance, it makes it very difficult to sell, especially in a down market.

I was actually thinking of building, and the company I'm going with makes it cheaper, so in the end, your house is appraised for more than you spent on it. So essentially, you just gain a lot of equity with nothing down.

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Originally posted by @Steve Vaughan:

I'd bet 29. You could go out the day after closing and Jack it up to 41 with a car and a cc. 29 is allowable housing cost.

BTW, USDA has a lot of hooks and fine print. I wouldn't do it if they paid me.

What's wrong with USDA?

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Originally posted by @Anthony Dooley:

It is a ratio. The 29 still applies to your income. With no debt, you would be good on the 41 at zero.

So that means if my income is, say, 4000, then they would allow my housing payment to be 4000*0.41, right? Or would they still limit me to 4000*0.29?

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Please explain DTI ratios to me. For example, USDA has a 29/41 DTI ratio. They say that your housing payment should be no more than 29% of your income and your total debt should be no more than 41% of your income. But what if you have NO other debt? Would they allow you the bigger loan so that your mortgage payment is 41% of your income? Would they allow your mortgage payment to be your "total allowed debt" if you have no other debt?

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Originally posted by @Jonathan Holmes:

You want to be real careful doing anything that could be considered fraudulent. What you’re basically asking is what’s the best way to trick a bank into financing a build.

I have heard of people financing builds that included finished basements that had bedrooms bathrooms, a living area and a separate entrance which they then rented. Once it is constructed it is yours and you could then decide to rent a portion out.

You should look into the Reno loans and consider buying a wrecked multifamily and rehabbing it. That loan allows you to remove everything but the foundation. I think it would be a more ethical option all around and less likely to get you accused of bank fraud.

There's just nothing really for sale around my area, those run-down homes will cost just as much as it would cost me to build a brand new home. How can I go about the USDA loan diligently? What if, perhaps I don't make any changes in the first year and only make changes after of year of living there, would it still be bank fraud?

Also, what makes a multi family home really a multi family home in the eyes of USDA? Is it the multiple kitchens, or perhaps multiple entrances? Would USDA really frown upon me adding more kitchens and entrances to the house, after the house is built and permanently financed?

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Originally posted by @Jonathan Holmes:

You are walking into a very questionable area. On the one hand if I buy an FHA property live in it for a year and a day and then move to another home with a different loan they will probably ask me why and want a reason. It sounds like you will be looking to get the second loan very soon after the first. I suspect you will have great difficulty coming up with a reasonable and honest answer to why you need to move from the home you just built into another home you're going to build.

That is a very questionable decision.

An alternative might be to look into building a SFH with a separately metered two bedroom in law suite over the garage.

I was also thinking, what if I use a USDA loan to build a bigger "single family looking home", and then once the home is built, take out a HELOC and use that money to convert the home into a multi family... would this work? Would I be able to take out a HELOC on USDA loan as long as the house appraises for more than it cost to build? And then would I be allowed to convert the USDA-financed house into multi family by adding kitchens/entrances/walls?

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I live in a small town and there aren't really any multi family properties to buy. Plus, it's a lot cheaper to build by buying a new manufactured home and putting it on a permanent foundation. Now, the problem is, I don't want to pay a huge downpayment for building a 3-4plex. I've contacted a few banks, and they all want 20% down for construction. The other two options are USDA and FHA construction loans, but they all will only fund SINGLE family home construction. So, I was wondering if I can get a USDA construction-to-perm loan first, construct one home, then get an FHA construction-to-perm right away to construct another home while I live for one year in the USDA home (they will be on the same land which is properly zoned, but I haven't bought the land yet). Can I do this? What are some other creative strategies for financing multi-family construction with no-low downpayment?

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All Forum Posts by: Ellie Narie

Ellie Narie has started 94 posts and replied 200 times.

Post: How soon can you get an FHA construction loan after USDA loan?

Post: USDA Direct loan and airbnb or rent-by-the room strategy?

Post: DTI ratio if you have no other debt?

Post: DTI ratio if you have no other debt?

Post: DTI ratio if you have no other debt?

Post: DTI ratio if you have no other debt?

Post: DTI ratio if you have no other debt?

Post: How soon can you get an FHA construction loan after USDA loan?

Post: How soon can you get an FHA construction loan after USDA loan?

Post: How soon can you get an FHA construction loan after USDA loan?