How to Close on Multi-Family in Today's Market using FHA Loan??

Question

I live in Dallas with my wife and we are currently in the market for multi-family homes that we can house hack. This would be our first investment property, currently we are just renters.

Over the past year I've been trying to learn as much as I can concerning house-hacking, listening to bigger pockets and other podcasts, read Hacker's Guide to the Galaxy, and asked questions on reddit's real estate subreddits. Most forums/information seem to preach on using an FHA loan by living in one of the units while renting out the others. We have already met with a broker and have been pre-qualified for a loan. The 3 options we have for loans are:

FHA (lowest DP required at 3.5%)
Fannie Mae (15% DP required)
Freddie Mac (15% DP required).

Our broker, with over 30 years experience in the DFW market, told us that in order to go the conventional loan route and do less than 15% down payment, we would only be able to do that for a single family home, not a multi-family.

After meeting with our real estate agent and looking at a duplex last weekend, our agent said that "an FHA loan is most likely going to end up at the bottom of the pile with the current offers going around in this crazy market." Cash up-front is not uncommon and some offers even waiving an inspection.

My question to this forum is how have others still been able to "house-hack" using FHA loans in the Dallas market? The property we just toured had over 90 offers in only 3 days, and was honestly not that nice of a duplex and the starting price was $500,000. Even if we wanted to make ourselves more attractive to the seller by going the Fannie Mae/Freddie Mac route for a loan, we are quickly priced out because of how high the market is right now which makes down-payments very, very high.

Is there something we are missing? Any advice from those who have closed on a multi-family in the past year (ideally past 6 months) using an FHA loan would be very helpful. How you did it, what seemed to be the difference maker, etc. We are feeling like it's almost impossible in this market...

Thanks in advance for any help/advice you can offer!

-Brian

Jason Wray · Answer

Brian,If you have an agressive agent he/she can help you write up an agressive offer to compete. You can put more earnest money down to secure the the contract as an attractive offer. You can also write up a contract that can close in 12-15 days if your broker can close that fast which is hard for most brokers. House hunting for the ability to talk to the owners/seller so that you can build a relationship and gain confidence that they are selling to a family not a flipper. Getting creative is just part of the game in todays market where inventory is low and homes are on demand.Give it time rates are going up and that can help the rush to the sale so maybe by July it may get better... There is also nothing wrong with using FHA for the 203K and find a home that needs some renovations. Once you fix it up turn around and refinance the home to take out some cash and now you have your 15%-20% to put down on a MF Home and be more aggressive with your offer. Don't wait for a MF get a SFR and start earning some equity to turn into cash for the next move!

Nick Riccio · Answer

Glad to hear you're taking the plunge, Brian. Great questions and a ton of insightful feedback already.I'll echo from a personal standpoint and as a lender. As an investor, I've closed 3 multifamily house-hacks in the last few years in Boston, most recent being end of 2021.In addition to everything people already said - another is to look off-market. I know that's easier said than done - but let everyone know what you're looking to do. Push your agent/lender to use their network. Deals are out there with sellers willing to accept FHA, but it's a numbers game. Also - does your state offer a state program? In Mass - we can do 5% conventional on 1-4 units if the buyer meets certain requirements. This is state specific, so I'd also look into that. Lastly, make sure your agent is confident in FHA and can sell it. It sounds like they have a negative outlook, which probably isn't helping your case (just being honest). Hope this helps!

Joshua Janus · Answer

@Brian Young Here is some guidance for getting your offers accepted in a competitive market -short closing times -avoid as many contingencies as possible -walk through the property beforehand with an inspector so you can write in an offer without an inspection period -cash > hard money > conventional financing > FHA/VA etc. financing -provide a reasonable amount of earnest money within a few days of going in contract -talk with the listing agent and provide evidence to build confidence in the selling side that you are serious and are planning on closing with the terms provided in the initial contract -be flexible with the choosing of the title company. Don't immediately leave it up to the seller but don't be stubborn about using your choice