What loan to use for first investment property

Question

Hey everyone,

I’m trying to find out what I need to get started with my first investment property. I am intending on house hacking. I have a decent credit score & money saved for down payment & closing costs (though I intend to use some sort o DPA program). I have steady income but not from the last 2 years- only since October. Can anyone point me in the direction of which loan I should try to get prequalified for? FHA? Conventional? Could NACA be used for my first house hack? please help lol

Kindly, Nadira

Nicole Heasley Beitenman · Answer

What was your income prior to October? Are you a W2 now, and if so, have you been with the same W2 employer since October?

It depends on the market you're looking in. If you're looking in a class-A market, you'll have a hard time getting an offer accepted. Otherwise, FHA is a great alternative if you don't have the DTI or credit score to go conventional. If you can go conventional, you should. It's only 3-5% down.

Also, do your due diligence on "DPA." There's no such thing as free money from a bank. DPA programs are typically a silent second, and right now, using them often pushes your closing costs and interest rate so high that you end up bringing the same amount to the closing table anyways. See if your city/town has a grant available for first-time homebuyers if you really can't come up with 3-5%.

Jack Seiden · Answer

Reach out to Kevin Fawley at novotny lending, they have some really interesting loans for 1st time homebuyers similar to fha but with no pmi and a cheaper rate.

Steven Foster Wilson · Answer

I think a FHA loan is a great idea. My first BRRRRR was $300k with a FHA loan, put $50k into it, refinanced, and got $90k back. I just refinanced again and got another $50k and it still cash flows $1800/month. I also think the champ loan is a great one.  I used that to buy my most recent home that we are doing a BRRRR.

Nadira France · Answer

Thank you all so so much.

Zierry Eme Carl T. Tagbas · Answer

Hello Nadira! I would recommend talking to multiple lenders and see which one would work best for you! For my first house hack, I used the FHA and was able to do low downpayment. I was able to purchase a duplex, living in one side and renovating it as I go and renting out the other side (which covers majority of my mortgage).

After you talked to a lender and figured your financing, connect with an investor friendly realtor!

Good luck out there and please feel free to connect with me if you have an questions!

Erica Ricketts · Answer

There are so many questions that I would ask as a lender to see which direction to point you in.

First, I completely agree with Nicole in regards to DPA. There is no such thing as a free lunch. Most of the DPA programs that I have seen are essentially a "second lien" that they put on your property and have tons of restrictions. You will probably end up paying back the money you owe once you move, thereby negating its purpose.

Secondly, if you are planning on house hacking, FHA has stricter appraisal guidelines and so it may not pass an FHA inspection depending on its condition.

Third, if your credit is just average, you may end up needing to buy down the rate to get to something that makes sense, thereby burning through some of your down payment money.

Josef Hardi · Answer

Hi Nadira,

I am also a new investor, wanted to welcome and encourage you on this journey! Also- congrats on your newly born.

I think you need to run the numbers on all of the scenarios above and see what works best to your advantage.

Some notes:

1. NACA - I believe you need to have 2 years of employment history and one solid year of employment & income. I am not sure if they have to be consecutive or not. As a side note, I was unemployed between Sep 2020 - Nov 2021 and I was still able to qualify for a conventional loan. I just had to provide past employment history and explanation for the employment gap. Why don't you give them a call and check if you qualify?

2. FHA - Just remember that even though it will be a lower down payment. There will be a fairly high monthly insurance cost. Calculate the numbers and see if it would benefit you or not. Advantage is: lower down payment and lower interest rate. But the disadvantage is the high PMI.

3. Conventional - Like what I shared above, even with my employment gap, I was still able to secure a loan.

4. House hacking is awesome, but remember that you still need to fund the "hacking" part yourself. I still don't have a good grip in terms of what renovation might cost, so if I were to do it, I would give myself a lot of buffers.

In general, i think if you can start the pre-qualification process with a couple of lenders, it will give you a good idea of what your options are. I used this brokerage company to help me shop around: https://www.the1brokerage.com/

Nadira France · Answer

Oh that sounds awesome! Did you use a loan to put the 50k in for fixing?

Nadira France · Answer

Thank you! I will be calling banks and seeing what the possibilities are. I didn’t work because of the pandemic and I also got pregnant and had a baby so I spent time off to take care of my child. But I know the banks don’t care lol

Nadira France · Answer

Thank you so so much for your response! I am w-2 and have been with the same employer since October. I also have 2 other streams of income but they are 1099. When I say DPA I’m certainly talking about grants. I don’t want to have to owe anything on top of the loan.

What loan to use for first investment property

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