Analysis of loan types for MF properties

[Tyler Gilbert]

Hi all. I have been doing some research into MF properties and have had some extremely informative conversations with some lenders and agents (Thank you Rick, Jonathan, and Jake). I’m interested in learning more about any positive or negative experiences from investors on differing loan types . Right now the options most applicable to my situation seem to be:

• FHA 3.5% down
  1. I was informed of the higher PMI payments and the negative connotation when looking at MF properties in Northern NJ. This is a possibility for me due to the low down %, although I'd need to include closing costs and other fees.
• Conventional 5% down
  1. This seems like a possible better option due to the lower PMI payments and potentially lower rate. Fannie Mae's 5% MF loans seem perfect for this even though I'd have to prepare a higher down.
• NJ State down payment assistance and a NJHMFA mortgage loan.
  1. This is enticing due to the $15k down payment assistance and additional $7k first generation program. However, I have not heard of how the loan rates compare to the more frequented options.

Context: First-time young homebuyer. High credit score. Low capital prepared but currently building up. Looking in northern NJ to househack.

Thanks all for your thoughts and feedback.

[Jonathan Greene]

Lenders will just tell you about the loans, but that doesn't mean you can win a house with those loan types. All payment assistance loans come with other conditions and are not recommended. FHA loans are fine (I just won one for a client in Bayonne and we just closed), but your agent has to be able to explain why to the listing agents who always think it's a low-money loan instead of an investor's preference loan. It's still very hard to win with FHA in NJ because there is a lot of competition putting 20 percent or more down. To win, you have to pay more and with FHA you need properties in good shape so they pass FHA inspections. Your best bet is the highest money down conventional you can do.

[Vaughn Smith]

If you can wait you may want to do so, educate yourself a bit, save up the capital and put yourself in a better position. buying properties as investments with low money down isn't usually a great strategy especially now were you won't be certain when you can refi

[Robin Simon]

Quote from @Tyler Gilbert:

Hi all. I have been doing some research into MF properties and have had some extremely informative conversations with some lenders and agents (Thank you Rick, Jonathan, and Jake). I’m interested in learning more about any positive or negative experiences from investors on differing loan types . Right now the options most applicable to my situation seem to be:

• FHA 3.5% down
  1. I was informed of the higher PMI payments and the negative connotation when looking at MF properties in Northern NJ. This is a possibility for me due to the low down %, although I'd need to include closing costs and other fees.
• Conventional 5% down
  1. This seems like a possible better option due to the lower PMI payments and potentially lower rate. Fannie Mae's 5% MF loans seem perfect for this even though I'd have to prepare a higher down.
• NJ State down payment assistance and a NJHMFA mortgage loan.
  1. This is enticing due to the $15k down payment assistance and additional $7k first generation program. However, I have not heard of how the loan rates compare to the more frequented options.

Context: First-time young homebuyer. High credit score. Low capital prepared but currently building up. Looking in northern NJ to househack.

Thanks all for your thoughts and feedback.

 When you say "MF" - are you referring to Multifamily and more specifically 2-4 units?  Generally "multifamily" in real estate will tend to mean 5+ units, but if looking for 2-4 units your current options that you listed are pretty good - but would not apply to anything bigger by unit count

[Ryan Donohue]

Hey Tyler, congrats on digging in and drilling into details for funding your first home & investment! I was very analysis paralysis on my first deal so I know the feeling. 

Currently, the market is still short on supply so when putting in offers you need to put on the 'seller' hat and think what they would want. Make the offer very attractive and chat with a bunch of lenders until you find one that speaks investment properties. 

Would love to help in anyway possible, shoot me a dm. (P.S. I house hack in Hawthorne NJ)

[Wale Lawal]

@Tyler Gilbert

The FHA Loan (3.5% Down) has a smaller down payment, quicker qualification, and lower interest rates than conventional loans. However, it has higher PMI fees and more stringent property condition standards. Conventional loans feature lower PMI and competitive interest rates, but demand a larger down payment and credit score. To make an informed selection, examine your long-term goals, overall expenses, property condition, and market competitiveness, talk with a mortgage expert, and investigate house hacking options. A conventional loan with 5% down may offer a balance of reduced PMI and attractive rates for Northern NJ home buyers with strong credit scores. If capital is a major restriction, the FHA loan remains an option.

Good luck!

[Tyler Gilbert]

Quote from @Robin Simon:

Quote from @Tyler Gilbert:

Hi all. I have been doing some research into MF properties and have had some extremely informative conversations with some lenders and agents (Thank you Rick, Jonathan, and Jake). I’m interested in learning more about any positive or negative experiences from investors on differing loan types . Right now the options most applicable to my situation seem to be:

• FHA 3.5% down
  1. I was informed of the higher PMI payments and the negative connotation when looking at MF properties in Northern NJ. This is a possibility for me due to the low down %, although I'd need to include closing costs and other fees.
• Conventional 5% down
  1. This seems like a possible better option due to the lower PMI payments and potentially lower rate. Fannie Mae's 5% MF loans seem perfect for this even though I'd have to prepare a higher down.
• NJ State down payment assistance and a NJHMFA mortgage loan.
  1. This is enticing due to the $15k down payment assistance and additional $7k first generation program. However, I have not heard of how the loan rates compare to the more frequented options.

Context: First-time young homebuyer. High credit score. Low capital prepared but currently building up. Looking in northern NJ to househack.

Thanks all for your thoughts and feedback.

 When you say "MF" - are you referring to Multifamily and more specifically 2-4 units?  Generally "multifamily" in real estate will tend to mean 5+ units, but if looking for 2-4 units your current options that you listed are pretty good - but would not apply to anything bigger by unit count

 Hi Robin, thanks for the clarification. Yes I'm looking for specifically smaller 2-4 unit MF properties. Good to know about the distinction and I'll keep that in mind. If I decide to scale up one day, do you have any thoughts on bigger unit count properties and the financing options available to those instead? Thanks!

[Tyler Gilbert]

Quote from @Vaughn Smith:

If you can wait you may want to do so, educate yourself a bit, save up the capital and put yourself in a better position. buying properties as investments with low money down isn't usually a great strategy especially now were you won't be certain when you can refi

Thanks Vaughn, this is an important point to consider. As much as I want to get started now, it's necessary to consider closing costs, setting up an escrow, taxes, PMI, etc.
I don't want to trip over myself and fall into a worse position. Do you have any advice on how to temper expectations and remain realistic about my timeline considering the need to build up capital? The mental game can be the hard part for me.

[Robin Simon]

Quote from @Tyler Gilbert:

Quote from @Robin Simon:

Quote from @Tyler Gilbert:

Hi all. I have been doing some research into MF properties and have had some extremely informative conversations with some lenders and agents (Thank you Rick, Jonathan, and Jake). I’m interested in learning more about any positive or negative experiences from investors on differing loan types . Right now the options most applicable to my situation seem to be:

• FHA 3.5% down
  1. I was informed of the higher PMI payments and the negative connotation when looking at MF properties in Northern NJ. This is a possibility for me due to the low down %, although I'd need to include closing costs and other fees.
• Conventional 5% down
  1. This seems like a possible better option due to the lower PMI payments and potentially lower rate. Fannie Mae's 5% MF loans seem perfect for this even though I'd have to prepare a higher down.
• NJ State down payment assistance and a NJHMFA mortgage loan.
  1. This is enticing due to the $15k down payment assistance and additional $7k first generation program. However, I have not heard of how the loan rates compare to the more frequented options.

Context: First-time young homebuyer. High credit score. Low capital prepared but currently building up. Looking in northern NJ to househack.

Thanks all for your thoughts and feedback.

 When you say "MF" - are you referring to Multifamily and more specifically 2-4 units?  Generally "multifamily" in real estate will tend to mean 5+ units, but if looking for 2-4 units your current options that you listed are pretty good - but would not apply to anything bigger by unit count

 Hi Robin, thanks for the clarification. Yes I'm looking for specifically smaller 2-4 unit MF properties. Good to know about the distinction and I'll keep that in mind. If I decide to scale up one day, do you have any thoughts on bigger unit count properties and the financing options available to those instead? Thanks!

 Yes for sure - I have an article and youtube video version breaking down the "buckets" of financing options for Multifamily depending on 2-4 Unit Bucket, 5-10 Unit Bucket and 11+ Units - all are very different - I don't think I can share links here but if you DM I can send you the links

I also published an article last year on "small multifamily dscr loans" which should also be helpful!

https://www.biggerpockets.com/blog/multifamily-dscr-loans

[Tyler Gilbert]

Quote from @Ryan Donohue:

Hey Tyler, congrats on digging in and drilling into details for funding your first home & investment! I was very analysis paralysis on my first deal so I know the feeling. 

Currently, the market is still short on supply so when putting in offers you need to put on the 'seller' hat and think what they would want. Make the offer very attractive and chat with a bunch of lenders until you find one that speaks investment properties. 

Would love to help in anyway possible, shoot me a dm. (P.S. I house hack in Hawthorne NJ)

 Hi Ryan, good point on changing my perspective to the seller. Based on the comments I've received, it seems like maximizing the down payment I can afford while remaining realistic on additional costs is the best way forward. Likely through a conventional 5% down I would imagine. How did you end up getting through the analysis paralysis stage for your first deal? That's very inspiring to me as I can tell once I have the capital prepared, it will take me some time to get to the action phase too. Would love to chat about house hacking and your experiences. I'll send you a DM! 

[Tyler Gilbert]

Quote from @Jonathan Greene:

Lenders will just tell you about the loans, but that doesn't mean you can win a house with those loan types. All payment assistance loans come with other conditions and are not recommended. FHA loans are fine (I just won one for a client in Bayonne and we just closed), but your agent has to be able to explain why to the listing agents who always think it's a low-money loan instead of an investor's preference loan. It's still very hard to win with FHA in NJ because there is a lot of competition putting 20 percent or more down. To win, you have to pay more and with FHA you need properties in good shape so they pass FHA inspections. Your best bet is the highest money down conventional you can do.

Thanks Jonathan, sounds like that's the path for me. I'm actively saving now. I'm sure I'll see you again soon so I'll keep you updated on my progress!

[Tyler Gilbert]

Quote from @Wale Lawal:

@Tyler Gilbert

The FHA Loan (3.5% Down) has a smaller down payment, quicker qualification, and lower interest rates than conventional loans. However, it has higher PMI fees and more stringent property condition standards. Conventional loans feature lower PMI and competitive interest rates, but demand a larger down payment and credit score. To make an informed selection, examine your long-term goals, overall expenses, property condition, and market competitiveness, talk with a mortgage expert, and investigate house hacking options. A conventional loan with 5% down may offer a balance of reduced PMI and attractive rates for Northern NJ home buyers with strong credit scores. If capital is a major restriction, the FHA loan remains an option.

Good luck!

Thanks Wale, that seems to be the repeated sentiment amongst many I've spoken to. Sounds like a 5% conventional is the path for me. I'll keep the FHA in mind as a potential second strategy though as capital will likely be a limiting factor in my ability to make deals, at least for the beginning of my career. Thankfully my credit score is strong so I have that going for me.

[Vaughn Smith]

Take the time to Educate yourself on the market and surrounding areas. Figure out your business plan and exit strategy as you accrue capital and keep an eye on the market it’s hard to tell when the time will be right as the market is in flux.

[Wale Lawal]

Quote from @Tyler Gilbert:

Quote from @Wale Lawal:

@Tyler Gilbert

The FHA Loan (3.5% Down) has a smaller down payment, quicker qualification, and lower interest rates than conventional loans. However, it has higher PMI fees and more stringent property condition standards. Conventional loans feature lower PMI and competitive interest rates, but demand a larger down payment and credit score. To make an informed selection, examine your long-term goals, overall expenses, property condition, and market competitiveness, talk with a mortgage expert, and investigate house hacking options. A conventional loan with 5% down may offer a balance of reduced PMI and attractive rates for Northern NJ home buyers with strong credit scores. If capital is a major restriction, the FHA loan remains an option.

Good luck!

Thanks Wale, that seems to be the repeated sentiment amongst many I've spoken to. Sounds like a 5% conventional is the path for me. I'll keep the FHA in mind as a potential second strategy though as capital will likely be a limiting factor in my ability to make deals, at least for the beginning of my career. Thankfully my credit score is strong so I have that going for me.

You're welcome! your plan is sound, with a strong credit score, the 5% conventional loan might be a good fit. Keep the FHA loan as an alternative if capital constraints arise. Build a relationship with a knowledgeable mortgage broker to navigate loan options and leverage house-hacking strategies to boost your investment portfolio.

Good luck!

[Ryan Donohue]

Quote from @Tyler Gilbert:

Quote from @Ryan Donohue:

Hey Tyler, congrats on digging in and drilling into details for funding your first home & investment! I was very analysis paralysis on my first deal so I know the feeling. 

Currently, the market is still short on supply so when putting in offers you need to put on the 'seller' hat and think what they would want. Make the offer very attractive and chat with a bunch of lenders until you find one that speaks investment properties. 

Would love to help in anyway possible, shoot me a dm. (P.S. I house hack in Hawthorne NJ)

 Hi Ryan, good point on changing my perspective to the seller. Based on the comments I've received, it seems like maximizing the down payment I can afford while remaining realistic on additional costs is the best way forward. Likely through a conventional 5% down I would imagine. How did you end up getting through the analysis paralysis stage for your first deal? That's very inspiring to me as I can tell once I have the capital prepared, it will take me some time to get to the action phase too. Would love to chat about house hacking and your experiences. I'll send you a DM! 

For me, I think finding a true deal was the turning point. When I saw the 2-family I'm in now for the price it was and rents at $500 below market and reviewing my own expenses for days I knew it was time to take the jump and made the offer. Everyone is different but maybe that can help you too?! Would love to chat, anytime!