First time buyer looking for a multi-family property

[Abraham Bakre]

Hello BP! This is my first post and I am excited to hear the responses from all you fine folks!

My question is about interest rates on loans for a multi-family property here in Houston, TX. Could yall give me an idea on the kind of rates (monthly Principle and Interest) I could be looking at? I want to do a 100% no-money-down loan on a 4 unit multi-family property estimated around 150-200K? I plan on living in one of the units so that I can take advantage of the first-time home buyer program I heard about and so that I can obtain better financing rates being that I'll be looked at as a homebuyer instead of an investor.

[b]Some background info: I have a median credit score of about 725, I'm 26 with no real estate owned, at my job I gross about $3600 a month, I would live in one of the units, and my monthly fixed expenses are minimal since I live with my mom currently. They total around $500. Im interested in all kinds of money sources including private investors, brokers, banks, credit unions, etc... Also, what other money would I need to come up with other then the purchase price? I'm aware of inspections, repairs, closing costs, and earnest money. Can I cover all of this with my loan? Or do I need cash or separate financing?

I have a prospective property I'm looking at currently for $165,000 list price. Its a four-plex w/ all units being 2/2 each. I found out that rent in that area for a 2/2 is about $850/month. I can provide more details if anyone thinks they can help me analyze this deal.

Thanks BP community!

Abraham Bakre

[Jon Holdman]

Abraham Bakre its very, very hard to find 100% financing. I won't say impossible, but its close.

Your best (only, really) bet for a low down OO loan is FHA. They will do 3.5% down. Not sure if they will do a fourplex, though. I just haven't looked at their rules.

You cannot get the loan to cover your up front costs like inspections or appraisals. FHA will only fund properties that are in tip-top shape, so repairs shouldn't be an issue. By that I mean if the property needs repairs, it won't qualify for a normal FHA loan. It might qualify for a FHA 203K rehab loan, which can include some repairs. Earnest money is part of the purchase price. You need to come up with that out of pocket. Closing costs (typically these include title insurance for the lender, recording fees, escrows for taxes and insurance, and other small amounts) can sometimes be partially covered by the seller, if you request it and they're willing. If your market is slow, you should be able to get these. If its relatively hot, though, maybe not. For insurance you typically have to come up with 14 months payments. That pays for the policy for the first year and starts the ball rolling for the second year. Taxes can be more varied. Usually a couple of months.

For the loan, you'll have various feed from the lender. A 1% "loan origination fee" is common. Usually there are underwriting fees, credit report fees, etc. Sometimes these can be negotiated. There will also be a fee for the appraiser. I've not paid for one on a fourplex. I'd guess it would be $700-1000. That will be out of pocket, usually at the time of the appraisal.

When you own rentals, you need cash. For this property, I would want to have a bare minimum of $5000 in cash reserves. I'd feel comfortable with $10,000. Properties have a way of waking up one morning and saying "hmmm, I think I want $500 (or $5000) today". Spending that money sometimes cannot be delayed inconveniencing your tenants or putting them in danger.