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Updated over 7 years ago, 03/15/2017
4 unit financing with 5% down - Freddie home possible
On the financing end we've been subject to FHA's self sufficiency rule for as far as time spanned but recently in early 2016 they (HUD/FHA) changed their 100% income SS rule to be more realistic and added a 25% discount for repairs and maintenance + vacancy. While smart on FHA's part, made it a lot more difficult for buyers/borrowers using FHA's program to purchase in higher cost markets since the rent to price ratio typically needs to be at .90% or higher (approx) to make this SS rule fly.
Freddie Mac Home possible is another program that is promising to lift this requirement and still offer a very competitive low down payment of 5% for 2-4 unit properties.
There are a few stipulations and an income restriction for the borrower to qualify, but in most metro areas there are no income limits in a predominant area of the city. Typically, the areas income limits are areas that are considered luxury, beach front, have master planned communities, or are more affluent income wise.
If you want more info on this program you can check out my BP blog article - Click Here
Even a high cost city like Seattle has no income limit areas (in yellow below):
In Orange County most of the central and upper parts of the county are eligible with no income limits but south county has only 3-4 yellow spots (no income limit census tracks).
In Los Angeles County there are a ton of no income limit areas below contrary to what we read about income limits being in only the roughest of areas.
@Albert Bui Thank you for the information. I have a question though. What if one of the units is burned, and the rest have minor damage as well? Are there any options to where this financing could still be made possible? Thank you in advance.
Originally posted by @Christopher Dunson:
@Albert Bui Thank you for the information. I have a question though. What if one of the units is burned, and the rest have minor damage as well? Are there any options to where this financing could still be made possible? Thank you in advance.
HI Chris,
Yeah the option would be to utilize a 203k FHA loan or a Fannie Mae Homestyle renovation loan the only down side is that the FHA 203k similar to a regular FHA loan has self sufficiency requirements on 3-4 unit properties so if you're in a area where rents are high relative to price then you could be good otherwise you might not be able to meet the rule and use 203k to finish off your repairs to the unit.
The other downside is if you used home style reno loan is that you'll need 25% of loan to cost as a down payment (acquisition price + rehab).
With the Home possible program the units have to atleast be habitable shape.
Originally posted by @Lane Kawaoka:
Albert Bui you are the bomb!
Hey whats up Lane?
Its funny how only the south side of seattle has no income limits and every where else is not considered "under served."
@Albert Bui Yeah the 25% down of PP plus Rehab makes it less incentivizing to use that type of financing. I suppose doing it this way, there would be no PMI, so thats a plus. If I chose to go that route, are there any types of penalties or problems with refinancing out of the loan in less than a year?
Originally posted by @Christopher Dunson:
@Albert Bui Yeah the 25% down of PP plus Rehab makes it less incentivizing to use that type of financing. I suppose doing it this way, there would be no PMI, so thats a plus. If I chose to go that route, are there any types of penalties or problems with refinancing out of the loan in less than a year?
No there are no pre payment penalities and a refinance after 1 year will be fine.
I forgot to mention home style renovation loan can be utilized on 1-4 units on primary residences, 1 unit SFR/condos only on second homes and investment properties (so no units for 2nd homes and investment properties with this particular program).
@Albert Bui - you rock man, thanks for posting this information.
Depending on where my company moves it's office to in the Puget Sound region, I may end up utilizing this program myself in the next 6-12 months.
Originally posted by @Alex Chin:
@Albert Bui - you rock man, thanks for posting this information.
Depending on where my company moves it's office to in the Puget Sound region, I may end up utilizing this program myself in the next 6-12 months.
Sure thing Alex, the only problem might be that you cannot own any real estate individually or jointly prior to application on this home possible program.
I have yet to ask what if the ownership and the debt are obligationed by a corporation or LLC and if that would count against this "individually or jointly," ownership rule but I'd bet that would be considered ownership as well. I'll update this post if anything changes on that determination.
Albert,
Home Possible opens up a whole new set of possibilities, thanks for sharing and educating us!
Can you recommend a few mortgage brokers that offer this type of program locally?
Kind Regards,
Jan
@Albert Bui - Well, that puts a slight damper on my plans since I did hold my current duplex in my name.
Ah well, no worries from me and on to the next one.