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Updated over 4 years ago, 05/01/2020

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Craig Curelop
Agent
Pro Member
  • Real Estate Agent
  • Post Falls, ID
1,079
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House Hacking Research #2- Ask/Answer any House Hacking Question!

Craig Curelop
Agent
Pro Member
  • Real Estate Agent
  • Post Falls, ID
Posted

Hello everyone, 

This is part 2 of my research project for house hacking. Please let me know any questions you have surrounding house hacking. If you have the answer to any question  you see, feel free to answer. 

Thank you!

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28
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Ryan Valenciano
  • Investor
  • Gilbert, Az
11
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28
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Ryan Valenciano
  • Investor
  • Gilbert, Az
Replied
Hi Craig your best bet will probably be private money/ hard money lender. 

Originally posted by @James F.:

HI Craig & Others, 

I am currently owner occupying a triplex that I bought with an FHA 3.5% loan at the end of September 2018. I'm trying to move into another multi-family property and keep the triplex I'm living in now as a rental property. I have talked with a few bankers, and they said that I would not be able to get another FHA loan and that a conventional mortgage on a multi-family property would start at 15% down for a duplex and go up from there for every additional unit up to four. I was wondering if there is a way to move into the next property with a smaller down payment ideal under or around 5%.

Thank you! 

User Stats

26
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Richard Santi
  • Rental Property Investor
  • Tacoma, WA
26
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26
Posts
Richard Santi
  • Rental Property Investor
  • Tacoma, WA
Replied

We've been house-hacking for a couple of years now. We finished rehab on our current primary residence, did a cash-out refinance and reallocated the capital into purchasing another rental property and its rehab. So we were stuck with a larger debt service. As Sachin Bhat says above, we do cover about 90% of our debt service house hacking which frees up more resources for REI and beer. It's a 3BR/2BA and we rent out two of the rooms. Initially we were doing AirBnb but we've transitioned to hosting travel nurses and it's best. Now we look at all prospective deals with that mindset whether its a MFH, or a SFH we can add a mother in law suite or already has one.

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Mike Bean
  • Worcester, MA
41
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69
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Mike Bean
  • Worcester, MA
Replied

@Jeremy Kolasa - as @Akeem Young said, he hired a PM and the PM told other tenants that he was a tenant as well. In my opinion it keeps you from bringing unwanted attention to yourself. I've been advised to tell my tenants that I am the property manager for the owner so that I don't run into problems while living there.

@Sachin Bhat @Mario Garcia The 1% rule should still apply regardless of whether you live in a house hack. It's still only considered a rule of thumb, so people will tell you that 1% is un-obtainable in their market while others will boast well over the 1%. The difference in a house hack is you just have to consider what your unit would rent for if you move out (which most owner occupants do after a year). Wouldn't you agree that you'd want to make sure you're earning 1% in rent when its fully rented out??

My questions for multifamilies: I'm considering a partnership to mitigate risk since I'm just starting out. Is a good strategy to use solely my name on an FHA and live in one unit with a partner (splitting profit/loss 50-50), then a year later doing the same thing with an FHA in my partners name for another year? In my market, the first property may be slightly negative cash flow but after moving out and fully renting the first place, it would be cash flow positive and would probably be breaking even on the second place. Thoughts and suggestions on if this is a good idea and where we might go from there?

Thanks!

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Replied

Hi There!

What are the best ways to finance the down payment, closing costs, and rehab costs? In other words, say I just find a nice triplex with a vacant unit and BRRRR wont work because other tenants are under rent control and paying below market value rent (and so fixing it up and increasing rent wont allow me to refinance effectively). Yet, the property can still cash flow and there's always a chance a tenant moves and I can reset my basis, which makes it still an interesting investment. Further say that the owner is willing to do a 70% seller carry-back loan at 4% for 30 years. This leaves the down payment of 30%, the closing costs, and rehab costs (or I can just go traditional and get a 3.5% FHA and forego the carry-back). Interested to hear everyone's thoughts!

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Mitch Kennedy
Pro Member
  • Rental Property Investor
  • Waupaca, WI
31
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89
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Mitch Kennedy
Pro Member
  • Rental Property Investor
  • Waupaca, WI
Replied

What would be the best way to do the book on a duplex that's house hacked? For example, let's say that mortgage and expenses are $1,500 and rent for the other side is $1000, which would leave $500 for me to cover. Would you recommend I deposit $500 into the business account and have all payments go through that account or is there a better way to manage this?

Appreciate any insight, thanks!

Mitch

  • Mitch Kennedy
  • User Stats

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    Replied

    I am in kind of a unique situation I suppose an am looking for some clarity. I am attempting to buy my first home using an FHA loan in IN. Ideally I want it to be like a triplex or duplex so that I can rent out the other units and break even or make cash flow on the mortgage, my question is will the bank let me switch to a 30 year loan after a while so the interest isn't that bad? Also I have been seeing a financial adviser and he warns to put 20% down instead of the 3.5% an FHA loan would give me, I still want to have as little money as in the house as I can have to a reasonable extent. What would you recommend?

    User Stats

    35
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    34
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    Lisa Irimata
    • Mesa, AZ
    34
    Votes |
    35
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    Lisa Irimata
    • Mesa, AZ
    Replied
    Originally posted by @Lamar Jean:

    After house hacking for a year, how do one get a second property to house hack?

     I am exactly in this situation right now. I've been at my current residence for 1 year and am looking at moving to another house within the next few months. My understanding is that the biggest issue for getting approved for a loan (assuming you're not just paying all cash) is proving that you'll actually use the second property as your primary residence and that you can afford a second mortgage. I claimed my current house hack as rental income on my 2018 taxes and according to the lender I'm working with, this will make it easier to prove that my current residence will be transferred to a full rental.

    Another few points of what I'm planning on doing in case you have any other questions (I'm sure this will change): I'm doing a direct mail campaign and am planning to finance with either conventional or FHA. I'm trying to do a light live in flip (cosmetic rehab) so I'm looking at 203K and other rehab-related loans.

    Sorry I can't give more specific details but this is what I've learned so far, so hopefully it's helpful!

    User Stats

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    Lisa Irimata
    • Mesa, AZ
    34
    Votes |
    35
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    Lisa Irimata
    • Mesa, AZ
    Replied
    Originally posted by @Logan Arthur Gilles:

    I am in kind of a unique situation I suppose an am looking for some clarity. I am attempting to buy my first home using an FHA loan in IN. Ideally I want it to be like a triplex or duplex so that I can rent out the other units and break even or make cash flow on the mortgage, my question is will the bank let me switch to a 30 year loan after a while so the interest isn't that bad? Also I have been seeing a financial adviser and he warns to put 20% down instead of the 3.5% an FHA loan would give me, I still want to have as little money as in the house as I can have to a reasonable extent. What would you recommend?

    It should be possible to refinance but you would need to figure out specifics of if you have to hold the FHA loan for a certain length of time or not. Also note that refinancing later will result in more closing costs (I didn't know this originally so I thought I'd just throw that out there). To my knowledge the power of house hacking is that you can get duplex, triplexes, or quadplexes for significantly less money (i.e. putting down 3.5%) but I'd recommend reading the BRRRR article on here if you haven't yet. You may want to consider a BRRRR/house hack combo situation so that you can put little money in upfront but then end up with more equity after you rehab/refinance.

    User Stats

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    Replied
    @Lisa Irimata : The thing is, i don't think I'm allowed to get another FHA loan as long as i still have the current one. I think my only only is to refinance out of the fha but that would 20% down. Are there any other options?
    Originally posted by @Lisa Irimata:
    Originally posted by @Lamar Jean:

    After house hacking for a year, how do one get a second property to house hack?

     I am exactly in this situation right now. I've been at my current residence for 1 year and am looking at moving to another house within the next few months. My understanding is that the biggest issue for getting approved for a loan (assuming you're not just paying all cash) is proving that you'll actually use the second property as your primary residence and that you can afford a second mortgage. I claimed my current house hack as rental income on my 2018 taxes and according to the lender I'm working with, this will make it easier to prove that my current residence will be transferred to a full rental.

    Another few points of what I'm planning on doing in case you have any other questions (I'm sure this will change): I'm doing a direct mail campaign and am planning to finance with either conventional or FHA. I'm trying to do a light live in flip (cosmetic rehab) so I'm looking at 203K and other rehab-related loans.

    Sorry I can't give more specific details but this is what I've learned so far, so hopefully it's helpfull

    User Stats

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    Lisa Irimata
    • Mesa, AZ
    34
    Votes |
    35
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    Lisa Irimata
    • Mesa, AZ
    Replied

    I'm currently in the process of finding (and hopefully purchasing) a new property after house hacking with my current residence for 1 year. I'm planning on converting my current residence to a full rental and then house hacking in my second property. Since I'm a young professional (no family, etc) I'm planning on house hacking a few more properties to build up my portfolio within the next few years. 

    Has anyone else done this? What are obstacles did you observed will constantly changing your primary residence? Any advice on going forward with this path?

    User Stats

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    3
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    Molly Plude
    • Realtor
    • Jacksonville, FL
    3
    Votes |
    39
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    Molly Plude
    • Realtor
    • Jacksonville, FL
    Replied

    Hello

    We just bought our 1st condo for rental property. We have a question, how should be handle it as far as getting proper manager or just try to learn now to do it on our own? Also, when it comes to tax purposes, how do we go with that?

    User Stats

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    7
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    Amanda Swetman
    • Austin, TX
    7
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    12
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    Amanda Swetman
    • Austin, TX
    Replied

    What is a cheap home owners insurance policy for an owner occupied situation?

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    Brandon Chidester
    Pro Member
    19
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    12
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    Brandon Chidester
    Pro Member
    Replied

    Hello! Can anyone touch on PMI? I'd like to avoid it with a conventional loan but I also like the advantages of a low FHA downpayment.

    Has anyone experienced both and can touch on preference/experience? Thank you much BP! 

  • Brandon Chidester
  • User Stats

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    Mindy Jensen
    Pro Member
    • BiggerPockets Money Podcast Host
    • Longmont, CO
    10,044
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    Mindy Jensen
    Pro Member
    • BiggerPockets Money Podcast Host
    • Longmont, CO
    ModeratorReplied

    @Brandon Chidester , PMI on an FHA loan stays for the life of that loan - you have to refinance out of it or it doesn't go away. Conventional loans allow for PMI to be removed upon request once you get to 20% equity, or are automatically removed when you hit 22% equity.

    FHA allows for lower credit scores, though. Talk to your lender about which option is right for you.

    User Stats

    1,165
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    Bart H.
    • Dallas, TX
    744
    Votes |
    1,165
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    Bart H.
    • Dallas, TX
    Replied
    Originally posted by @Lisa Irimata:

    I'm currently in the process of finding (and hopefully purchasing) a new property after house hacking with my current residence for 1 year. I'm planning on converting my current residence to a full rental and then house hacking in my second property. Since I'm a young professional (no family, etc) I'm planning on house hacking a few more properties to build up my portfolio within the next few years. 

    Has anyone else done this? What are obstacles did you observed will constantly changing your primary residence? Any advice on going forward with this path?

     We have done it 4 times now.

    Basically your big issue will be that you may have some difficulty getting the lender to recognize the "rental income" on the house you are moving out of with regards to having the income/debt ratios to qualify on your next house.

    The banks typically like to see a record of being a landlord and only will recognize a certain percentage of rent (typically 75%) towards your next loan.

    Also we have had some minor questions come up when we moved to a smaller house or when we moved to a less expensive house than our last house.  We had to write an explanation note as to why we were moving to the new property.  The lenders want to make sure you really will owner occupy a property when you say you will owner occupy a property.

    User Stats

    35
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    34
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    Lisa Irimata
    • Mesa, AZ
    34
    Votes |
    35
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    Lisa Irimata
    • Mesa, AZ
    Replied

    @Bart H. Thanks for the detailed response, for the letter justification did you typically work with your lender/agent on that or did you personally submit a note when you were contacting lenders? Never thought of the situation where lenders would be suspicious about moving from a larger to smaller property but it makes sense. Overall sounds like the process isn't too difficult versus what I imagined. 

    User Stats

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    Bart H.
    • Dallas, TX
    744
    Votes |
    1,165
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    Bart H.
    • Dallas, TX
    Replied
    Originally posted by @Lisa Irimata:

    @Bart H. Thanks for the detailed response, for the letter justification did you typically work with your lender/agent on that or did you personally submit a note when you were contacting lenders? Never thought of the situation where lenders would be suspicious about moving from a larger to smaller property but it makes sense. Overall sounds like the process isn't too difficult versus what I imagined. 

     Its usually a condition put on loan approval by the underwriter. 

    The underwriter of the loan usually approves the loan with a handful of stipulations.  Might be they need a copy of our lease, or bank statement, or a letter stating why we are moving.   

    The mortgage broker (or bank) will tell you if a letter is needed as a condition of the loan from the underwriter.  Its really not a big deal, we say the absolute minimum to answer the question.

    Like I said, we really do move in (if we do am owner occupied loan), I am too old to wear orange with a serial number on it.

    BTW, the more properties/loans you have the more questions you seem to get.

    User Stats

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    1
    Votes
    Silas Rogers
    • Rental Property Investor
    • Atlanta, GA
    1
    Votes |
    19
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    Silas Rogers
    • Rental Property Investor
    • Atlanta, GA
    Replied

    @Lisa Irimata

    I’m looking to house hack as well. How did you find your first deal?

    User Stats

    68
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    26
    Votes
    Sachin Bhat
    • Rental Property Investor
    • Lancaster, CA
    26
    Votes |
    68
    Posts
    Sachin Bhat
    • Rental Property Investor
    • Lancaster, CA
    Replied

    @Mike Bean Its very difficult to achieve 1% rule in California where I live and House hacked for years. Even if you renting out your property room by room very difficult achieve 1% rule for the first time home buyers. If you have the money pay cash then you might be able buy a it for discount a fixer upper which might get you close to 1% rule. When I house hacked a condo I had to build another room just to cover my mortgage and most of the expenses (I paid for all the utilities but charged higher rent). Even then it wasn't close to 1% rule. For example: Purchase price was 290K 3 bedroom condo but I received in rent $2100. The appreciation outset the 1% rule. I sold that condo and put 100K in my pocket while I lived there for over 10 years rent free. 

    User Stats

    35
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    Lisa Irimata
    • Mesa, AZ
    34
    Votes |
    35
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    Lisa Irimata
    • Mesa, AZ
    Replied

    @Silas Rogers If you haven't already, I'd highly recommend reading the house hacking article on BP, that's what I referenced when I first learned about house hacking.

     https://www.biggerpockets.com/blog/2013/11/02/hack...

    For my market I wasn't looking too hard for small multifamily because they are pretty scarce and are often in C/D class neighborhoods which I didn't want to live in. Honestly I did not buy my first house with the intent of house hacking, I mostly just really needed a place to live at the time. That being said I specifically looked for either houses/townhouses that were 3B2B or 2B2B (with the ability to easily add a 3rd bedroom on) and I wanted a max purchase price that was ~75% of the largest loan I actually qualified for. 

    I found my current place on MLS through my realtor after touring a bunch of house and honestly I got really lucky. The numbers ended up working out great for me even though I hadn't specifically been using the 50% rule or anything. Looking back (and towards the future as I am analyzing my next deal specifically for a house hack) the biggest factors I'd consider are:

    1. Average rent in the area you're looking to house hack in -- don't high ball or low ball what you'll actually be making on rent. A friend of mine high balled the amount she'd be getting per month and ended up getting rid of the rental property rather than having negative cash flow every month.

    2. What amount of rehab you want to put into the property since you'll most likely be living there while you're upgrading. I went for light rehab because due to lack of funds I knew I'd be doing a lot of the rehab myself.

    3. Max purchase price and if the property fits into the 50% rule when you have roommates. See the above article for details on the 50% rule.

    4. What type of property makes sense in your area and what are you going to be happy with. As I mentioned before I didn't really consider small multifamily BUT I already have friends lined up to live with me so I wasn't concerned about sharing my actual house with a stranger, I don't think I'd be comfortable renting out a room to 2 random people.

    User Stats

    29
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    35
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    Jassen Bowman
    • Rental Property Investor
    • Rapid City, SD
    35
    Votes |
    29
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    Jassen Bowman
    • Rental Property Investor
    • Rapid City, SD
    Replied
    Originally posted by @James F.:

    HI Craig & Others, 

    I am currently owner occupying a triplex that I bought with an FHA 3.5% loan at the end of September 2018. I'm trying to move into another multi-family property and keep the triplex I'm living in now as a rental property. I have talked with a few bankers, and they said that I would not be able to get another FHA loan and that a conventional mortgage on a multi-family property would start at 15% down for a duplex and go up from there for every additional unit up to four. I was wondering if there is a way to move into the next property with a smaller down payment ideal under or around 5%.

    Thank you! 

    Hi James,

    Borrowers are generally limited to having only one FHA loan at a time. If you have to move more than 100 miles away for job change or some other extenuating circumstance, you can get another FHA loan, maybe. But generally, limit one per customer, period.

    On the Fannie/Freddie side, 5% loans are only available for SFRs. 2-4 units require an investor loan, even if owner occ one unit, so down payment minimum is 15%.

    The only way to do another low/no down 2-4 unit in your area would be to use a VA loan if you're eligible.

    If you can only do 5% down, buy an SFR.

    My first property was a duplex, zero down, VA. Second was another VA, but SFR. Third was 5% conventional, fourth is 10% conventional. All owner occupied. I'm "saving" my one and only FHA loan spot for the perfect 4-plex.

    User Stats

    40
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    7
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    Ricky Hale
    • Specialist
    • Fort Lauderdale, FL
    7
    Votes |
    40
    Posts
    Ricky Hale
    • Specialist
    • Fort Lauderdale, FL
    Replied

    Has anyone invested in Mexico? Right now I live in Puerto Vallarta, MX.

    Cirque du soleil Theme Park is being built in Nuevo vallarta so it is driving the price of condos up.

    One building I invested in sold out in one month. it kind of crazy the way these properties are going.

    The deal I'm looking at is for crowd funding or an individual to invest in.

    Individual:

    buy a condo with 30% down.

    Get 8% off the sale price

    sale the condo for 20% more than sale price

    (the math)

    condo is $495,000, we buy @ $455.400 (8% off)

    take control of condo with 30% down @ $136,620

    leaving amount owed @ $318,780

    we sale condo @ $545,000

    Profit = $91,080

    not bad for 2 months of work.

    Crowd Funding:

    buy building with 12 condos

    30% down

    8% off of sale price because we are buying pre construction

    sale each condo for 20% more

    (the Math)

    condos are $455.400 each $5,464,800

    30% down at $1,639,440

    sale at $6,557,760

    Profit= $1,092,960

    please let me know what you think

    regards,

    Ricky

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    User Stats

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    Silas Rogers
    • Rental Property Investor
    • Atlanta, GA
    1
    Votes |
    19
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    Silas Rogers
    • Rental Property Investor
    • Atlanta, GA
    Replied

    @Lisa Irimata

    Thanks for the detailed response! I will definitely read that blog. I’m Excited to get started. Best of luck to you on your next house hack!

    User Stats

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    34
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    Lisa Irimata
    • Mesa, AZ
    34
    Votes |
    35
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    Lisa Irimata
    • Mesa, AZ
    Replied

    @Silas Rogers keep us updated on how it goes!

    User Stats

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    53
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    Doug Phillips
    • Realtor
    • Cincinnati, OH
    53
    Votes |
    140
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    Doug Phillips
    • Realtor
    • Cincinnati, OH
    Replied

    I've talked to a couple of people who are opposed to FHA due to PMI it carries with it. Is there any way to combat this, or does it just come with the territory? I myself am looking at house hacking in my market but am trying to weigh out the best options.