How Much House Can I Afford?

Question

Hi Everyone!I've been interested in house hacking a multifamily property for a while now and I think I'm getting close to being financially ready. Before going to a lender I wanted to get thoughts from others on what the most $ I will potentially be able to borrow is, and what price range I should be looking for given my financial situation.About me:Current Salary: $68k ($5,666/mo. gross)Savings: $30kMonthly Debt: $60/mo. minimum student loan paymentLast hard credit pull was 772 (~1.5 yrs ago), recent credit reports show me around 785.I qualify for a down payment assistance program that provides up to $15k that can be used towards additional down payment or closing costs. This is a zero interest loan that must be repaid in full if I move out or the property is sold.My long-term partner contributes $550 a month towards our rent right now, and would contribute a similar amount. This property would only be under my name.Looking for a Duplex in the Minneapolis/St.Paul area. Live in one unit, rent the other. I'd like to put 10% down if possible and want to leave ~$10k savings.Other questions I have: If I'm looking at a multifamily FHA loan, what are the general DTI limits for someone with my financial situation? Is a higher DTI allowed for multifamily loans than single family loans?I've been leaning towards an FHA loan because from what I've read they allow for a higher DTI, and have slightly lower interest rates than Commercial loans (although upfront and monthly MIP may even it out). Is FHA a better overall option for me than Conventional?Does my partner's rent contribution help me out at all? I pay the full amount each month then she pays me her portion. Has been this way for the last 1 1/2 years. Assuming no, but figured it doesn't hurt to ask!If I buy down my interest rate, does that change the amount I can qualify for? Or do you buy down points AFTER you've been given your approved amount?Thank you in advance for any and all contribution :)

Julien Jeannot · Answer

@Dawson QuimbyGreat questions. All best answered by a lender. Call a few to find one that specialized in the strategy you are looking to execute.

Jason Wray · Answer

In my opinion it’s not a bad idea for two reasons - one it never hurts to jump into a pre-approval and make sure that you are 100% covered from all aspects. It give enough time to correct anything that may pop up which could be credit not just scores but trade lines, dispute, something reporting in error etc. Plus it allows you to have an in depth conversation with the a banker to talk about all of your options. Discuss single family versus 2-4 units talk about your income qualifications as well as other units rents as an option to expand on the purchase price. Discuss other markets and have enough time to evaluate cash flow/ROI perspectives. Most approvals are good for 120 days but can easily be refreshed and always good to have the approval letter in hand in case something promising present itself.

Emmanel Mebratu · Answer

Hi DawsonI am happy that you are ready to buy your first investment property. I recently bought and owner occupy a duplex in Uptown last year. You can take advantage of first time homebuyers programs through the state of MN that allow you to buy a multifamily with lower interest rate and lower downpayment but the rental income of the other units would have to fit within a certain range. I am a licensed realtor and can send you contacts of local lenders if you want to get pre-approved. If you would want more specific questions answer fell free to reach out to me. Cheers

Jason Wray · Answer

Dawson, All great questions my first piece of advice would be choose a Bank/Lender and fill out an application. Getting a Pre-approval takes all of the questions & concerns out of the equation by telling you exactly what you can qualify for up front. Based on your income, and credit it should not be a problem to qualify. FHA is a great options and you only need 3.5% down but there is also Fannie Mae 5% which can save you a little more money. When you purchase a 2-4 unit as a primary you can also use the other rents/doors to qualify. We use 75% of the rents to add to your income which can help buy a more expensive multifamily. You can buy a rate down which lowers the rate & payment so it does offer the option to qualify for a higher loan amount. Your partners income can only be used if they are added to the loan as a borrower/co-signer.

Bryon Andrews · Answer

Hey @Dawson Quimby You have obviously done a ton of research already which is great! These are all valid questions.Keep in mind that one of the major benefits of house hacking is that you are getting into a property for little cash out of your pocket. You also do not have to max out your DTI to find a great deal! Some of my best house hacks around the Twin Cities have been significantly under my pre-approval amount. Keeping capital in your pocket to add value in renovations or monthly rental income might be more beneficial long term than raising your down payment amount. Reach out if you have more questions. Otherwise, I think you need to reach out to a lender and start the application process. (Remember, not all lenders are the same. Make sure they understand your goals and know house hacking) Good luck!

Dawson Quimby · Answer

Thank you for your help, Jason! Do you think I should start the pre-approval process even if I may be 6+ months out from being able to purchase?