Loan Officer: 25% Down Payment Required For First Time Homebuyer House-hacking 4plex

Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes

3y

It depends on the terms of the loan, but you should definitely be able to find local lenders that offer lower down payment loans than that as a house hacker. The popular low down payment loans for house hackers include FHA, VA, USDA, and Home Possible. The lenders I work with also offer portfolio and other specialty products where you can put 0-10% down as house hacker if you meet the requirements. But if you use FHA and the property cash flows well once you move out, who cares if you have to pay for some PMI? You're putting a ridiculously low amount of money down.

I think you should talk to a few more lenders though.

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Scott Bridgehouse

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Member since 2019 · 17 posts · 6 votes

3y

@Paul De Luca

Really appreciate your reply. I've done some digging on other posts since I posted mine above and it doesn't seem entirely uncommon for lenders to have these requirements in place, house-hacking or not. Which is a relief to an extent. And I hear you on the cash-flow after moving too, so I'm glad my mentality was aligned with yours as I considered FHA instead if I have to go that route.

Quick follow-up, if you'd indulge me: the attractiveness of my offer. Isn't it common for conventional loans to be viewed more favorably than FHA? Maybe I'm making it a bigger deal than its worth, but with the housing market as volatile and competitive as it is, I want to be going in from as strong a position as possible.

Curious your thoughts on that and whether I'm being overly conservative/ pessimistic about my prospects if I ultimately go FHA.

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Paul De Luca

Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes

3y

Quote from @Scott Bridgehouse:

@Paul De Luca

Really appreciate your reply. I've done some digging on other posts since I posted mine above and it doesn't seem entirely uncommon for lenders to have these requirements in place, house-hacking or not. Which is a relief to an extent. And I hear you on the cash-flow after moving too, so I'm glad my mentality was aligned with yours as I considered FHA instead if I have to go that route.

Quick follow-up, if you'd indulge me: the attractiveness of my offer. Isn't it common for conventional loans to be viewed more favorably than FHA? Maybe I'm making it a bigger deal than its worth, but with the housing market as volatile and competitive as it is, I want to be going in from as strong a position as possible.

Curious your thoughts on that and whether I'm being overly conservative/ pessimistic about my prospects if I ultimately go FHA.

If you're getting a typical conventional loan for a 2-4 unit property even as a house hacker, you're correct those kinds of down payments are not uncommon. Which is why you shouldn't use those loans unless you can't avoid it.

It's also true that most sellers are going to view conventional loans more favorably than FHA. That may be for a combination of reasons, like the FHA appraisal property condition requirements or a lower down payment. And if you're aiming for a 3-4 unit property then the property needs to pass the self-sufficiency test and you need to keep the loan limits in mind. It was a tough time to be an FHA buyer in 2021 because the market was so competitive and those FHA offers did frequently get beat unless offering way more money. But the market is very different now so I'd say give it a shot and if it's not working have another conventional pre approval you can fall back on.

I bought my 3rd house hack in May 2022 using an FHA loan.

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Paul De Luca

Hugely appreciated yet again. Its amazing how much better I feel hearing just someone else speak to it. This lender was referred to me by my realtor, and even he said, when seeing the down payment requirements, "I don't think she knows you're going to live in the property." I'm wondering if maybe he would have any sway for me.

I'd imagine though that that's not something I could negotiate though?

I know I'm milking this for all it's worth.. but if you have the time to talk through that (or someone else reviewing the post!), that would be huge as I go into a meeting with my realtor this evening.

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Jay HurstBusiness Member

Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

3y

Quote from @Scott Bridgehouse:

BiggerPockets Community! I am so happy to be posting my first ever question on the forums. Long-time listener, first-time poster.

As the title suggests, I'm gearing up to buy my first ever property. I have a realtor, a location mapped, savings in the bank, and got prequalified earlier this year. I received a raise, and so I went back to my loan officer who did my first pre-approval so she could give me new figures. During this discussion, she said "by the way, for a conventional loan, we require 15% down on a 2-unit, 25% down on a 3-4 unit." I asked her how that could be considering this is my first-ever property, I wouldn't be exceeding 4 units (staying residential not going commercial), and I would be living in one of the units for at least a year (owner occupied, primary residence). She has not yet responded back to me.

Is this a universal rule with conventional loans? Or is this specific to Guild Mortgage? Of course I could go the FHA route, but I'm trying to avoid the life-long insurance until refinancing aspect of it if I can. I just always thought FHA was better suited for those with lower incomes/ credit scores (I have a stable six figure salary, roughly 750 credit score) - maybe I'm totally missing something here. Maybe I'm not. Should I be shopping for a different mortgage company?

Any help keeping my head straight with what I thought I could do with a conventional loan while house-hacking as a first-time homebuyer planning to owner-occupy would be immensely helpful as I kick off my real estate investing journey!

@Scott Bridgehouse conventional loans require the same amount of down payment for EVERY lender so it is not just Guild mortgage. A conventional loan means that is backed by Fannie Mae or Freddie Mac and subsidized by the federal government (by the implicant guarantee if the Gov will backstop these loans as they always have) therefore all conventional loans have to meet there rules. And yes, for a owner occupied 2 unit you have to put down at least 15% and 25% for an owner occupied 3-4 unit. It is published right in their website. https://singlefamily.fanniemae...

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Brett MerrillBusiness Member

Rental Property Investor · Ludlow, MA · Member since 2016 · 114 posts · 48 votes

3y

Keep vetting other lenders. You should be able to find better. Run the numbers each way though. I used FHA for one of my fours because it ran excellent #'s including the PMI and let me safely leverage my money with little money down and used the rest for the next purchase. Trust the numbers.

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Jay Hurst

Super helpful. Really helped assuage my concern that she might just be trying to pull a fast one on me. I wonder why I was so confident that, so long as I was living in the property, I could do lower numbers, especially as a first-time buyer. It seems like many people on the forums seeking go about this strategy have been confused in the same way. I wonder if something comes to mind that we all might be thinking of instead?

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Brett Merrill

Thanks for doubling down on the push to shop with different lenders. While I did shoot a "Sorry I was wrong" email over to my current loan officer, I did imply that I am still interested in other options, whether that be what she could offer with her company or somewhere else.

Any "must-do" tips when calling around and trying to learn what lenders can offer? I will of course be consulting all the BiggerPockets books I own, but would love to hear if something immediately jumps out at you when hearing that question.

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Jay HurstBusiness Member

Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

3y

Quote from @Scott Bridgehouse:

@Jay Hurst

Super helpful. Really helped assuage my concern that she might just be trying to pull a fast one on me. I wonder why I was so confident that, so long as I was living in the property, I could do lower numbers, especially as a first-time buyer. It seems like many people on the forums seeking go about this strategy have been confused in the same way. I wonder if something comes to mind that we all might be thinking of instead?

@Scott Bridgehouse Most first time house hackers are using FHA. As you mentioned that does have a higher mortgage insurance costs. But, even with FHA a 3-4 unit can be tough with only 3.5% down because of the FHA self sufficiency test. if the property has a total rent of say 3k a month (as determined by the appraiser) then FHA will give you credit for 75% of that number so 2250. That 2250 has to be higher then the mortgage payment, taxes and insurance. if not, FHA requires the loan to be lowered unit the total payment is lower.

2 units do NOT have that requirement.

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Jay Hurst

Very good insights. So is it a fair statement for me to make that I have a better chance of passing the self-sufficiency test on a 3-4 property with an FHA loan the higher percentage of down payment I make (so as to reduce the overall monthly payment)?

When calculating the total rent from which they take 75%, do they include only the units I'm renting out? Or would they include the unit I plan to occupy as well?

Thanks for sharing the wisdom - was losing sleep over this last night. Turns out this is the "real time knowledge" that you just take in from doing it, no matter how many books you read.

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Jay HurstBusiness Member

Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

3y

Quote from @Scott Bridgehouse:

@Jay Hurst

Very good insights. So is it a fair statement for me to make that I have a better chance of passing the self-sufficiency test on a 3-4 property with an FHA loan the higher percentage of down payment I make (so as to reduce the overall monthly payment)?

When calculating the total rent from which they take 75%, do they include only the units I'm renting out? Or would they include the unit I plan to occupy as well?

Thanks for sharing the wisdom - was losing sleep over this last night. Turns out this is the "real time knowledge" that you just take in from doing it, no matter how many books you read.

@Scott Bridgehouse Yes, the more down payment the better chance of passing the test. Of course, I have seen some that would require 25% or more down so in that case you would still be better of with a conventional loan possibly. and yes, you do get to count rent for all the units even the one you would be occupying for the self sufficiency test.

and it does seem the books leave out a lot of important details.

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Jay Hurst

You (and the rest of the folks here) really just made my Friday. Thank you so much for the advice and clarity. I just got off the phone with my mom who also just bought her first investment property not too long ago and said "You HAVE to try to the forums, the people are incredibly helpful."

Thanks again everyone!

Of course, I am still open to any and all tips and tricks surround this topic if others come by this thread and want to throw their hat in the ring.

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Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

3y

@Scott Bridgehouse Loan office is clueless. Find a new 1.

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Bud Gaffney

Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes

3y

@Scott Bridgehouse house hack with 5% down

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Harjeet BhattiPro Member

Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes

3y

@Scott Bridgehouse There are two options for buying 2-4 units- FHA with 3.50% down payment and Home Possible with 5% down payment. Although both programs has restrictions which borrower should know before they consider either product for financing. There are some banks who have their own CRA portfolio loan which can be used for 2-4 units. Wintrust mortgage has their own CRA portfolio product for 2-4 units with 5% down payment but that's in our footprint only. Try to find out if any of your local bank offer this kind of product.

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Maribel ManiboPro Member

Real Estate Investor · Alamance County, NC · Member since 2016 · 34 posts · 14 votes

3y

I have similar credit/income and first time buyer (sold mine > 3 years ago). I was pre-approved for 3% down (this was for dup/tri) by Paddio, conventional loan. Still shopping but doubt I can beat that. Happy to stay in touch!

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Jay HurstBusiness Member

Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

3y

Quote from @Harjeet Bhatti:

@Scott Bridgehouse There are two options for buying 2-4 units- FHA with 3.50% down payment and Home Possible with 5% down payment. Although both programs has restrictions which borrower should know before they consider either product for financing. There are some banks who have their own CRA portfolio loan which can be used for 2-4 units. Wintrust mortgage has their own CRA portfolio product for 2-4 units with 5% down payment but that's in our footprint only. Try to find out if any of your local bank offer this kind of product.

Home possible requires that your income is 80% or less of the median income. and still requires 25% down for 3-4 units. Very few places where 80% of the median income is six figures.

Home Possible factsheet

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David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

3y

@Scott Bridgehouse,

Purely my opinion ...

Regardless of how you're financing it, when analyzing a property as an investor, I would expect any multi-family property to meet commercial criteria. Especially, the DSCR (Debt Service Coverage Ratio): the NOI from the units you don't personally occupy should be greater than about 1.2% of the P&I on the property. 1.2% is a common value used by lenders to determine whether the property meets their "self-sufficiency" criteria. You may still need your own income or resources to build up reserves and cover Cap Ex initially.

My $0.02 ...

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Bud Gaffney - I think I'm with you. I spoke with my realtor last night and talked through some of the awesome feedback from this thread and he said in more or less words "If the numbers work while you live there and once you move, it's worth taking the plunge. Especially to get out of being a renter yourself." Based on where I plan to buy (A or B+ neighborhood in Lancaster City, PA), the property should not only be expected to appreciate but I will be able to command rents that keep me cash flowing during and after the house-hack. I think part of my issue too is that I've have the Ramsey Show in my ear screaming about debt-free life, but I think it's better keep more of my cash freed up rather than sink in 25% on my first one (likely at a purchase price from $300k-$400k). I won't go down the good debt/bad debt rabbit hole, but like @Brett Merrill and @Paul De Luca are saying too: trust the numbers.

@Harjeet Bhatti I appreciate you and @Jay Hurst keeping me in check with real numbers and programs too. I'm realizing that there is a big jump from the theoretical planning stages to the real world of hard facts and figures.

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Maribel Manibo Thank you for sharing your actual experience as well. I'm starting to see the patterns here where its either do some shopping with local banks to explore whether there are unique packages that offer lower down payments or FHA, based on my financial situation and location (I am above the median income in Lancaster - I have a full remote job that started in office in DC so I'm taking that with me to a lower-cost area as a strategy to make my money run longer).

@David Dachtera super helpful to hear how you think through it. You know, I have found myself more or less wanting to run my analyses by similar means. I know that with the 2-4plexs the comps would still be based on other like properties as opposed to comparing NOI, but I feel from a business perspective, it makes to still look at the property from that angle, so thanks for sharing.

I wonder then, with all these options and knowing that there's usually an inflection point in an investor's journey where they've used of many of the more "standard" means of financing, would it make sense for me to simply go FHA on this first one and save the exploration of other options for further down the road when I will no longer fit into the first-time homebuyer bucket?

As always, would love any and all feedback, thoughts, and experiences anyone is willing to share.

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Harjeet BhattiPro Member

Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes

3y

Quote from @Jay Hurst:

Quote from @Harjeet Bhatti:

@Scott Bridgehouse There are two options for buying 2-4 units- FHA with 3.50% down payment and Home Possible with 5% down payment. Although both programs has restrictions which borrower should know before they consider either product for financing. There are some banks who have their own CRA portfolio loan which can be used for 2-4 units. Wintrust mortgage has their own CRA portfolio product for 2-4 units with 5% down payment but that's in our footprint only. Try to find out if any of your local bank offer this kind of product.

Home possible requires that your income is 80% or less of the median income. and still requires 25% down for 3-4 units. Very few places where 80% of the median income is six figures.

Home Possible factsheet

Home possible factsheet shows fix rate has 5% down payment but if you go with ARM need higher down payment. It's good product if meets the requirement. With 2nd community lien can go higher CLTV.

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Harjeet BhattiPro Member

Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes

3y

Quote from @Scott Bridgehouse:

@Bud Gaffney - I think I'm with you. I spoke with my realtor last night and talked through some of the awesome feedback from this thread and he said in more or less words "If the numbers work while you live there and once you move, it's worth taking the plunge. Especially to get out of being a renter yourself." Based on where I plan to buy (A or B+ neighborhood in Lancaster City, PA), the property should not only be expected to appreciate but I will be able to command rents that keep me cash flowing during and after the house-hack. I think part of my issue too is that I've have the Ramsey Show in my ear screaming about debt-free life, but I think it's better keep more of my cash freed up rather than sink in 25% on my first one (likely at a purchase price from $300k-$400k). I won't go down the good debt/bad debt rabbit hole, but like @Brett Merrill and @Paul De Luca are saying too: trust the numbers.

@Harjeet Bhatti I appreciate you and @Jay Hurst keeping me in check with real numbers and programs too. I'm realizing that there is a big jump from the theoretical planning stages to the real world of hard facts and figures.

There are programs available but has to find a right lender. We all as lender has some time unique products which meets certain loan scenario not all but do help fulfill the dream of homeownership.

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Pablo PereyraBusiness Member

Real Estate Broker · Memphis, TN · Member since 2014 · 30 posts · 22 votes

3y

@Scott Bridgehouse

I have not heard anyone else said it yet: be aware that you will be signing an affidavit at closing that you will be living in the property within 30 days of closing, should you not buy it with an investor loan, through the time determined by the lender.

Not living there during the complete time you sign (ie 1 year) the lender’s form will be considered mortgage fraud, perjury.

We are all 100% sure and we 100% assume without any reservation you are moving into your new home (congrats!), nothing was implied by you nor anyone that you would not.

The comment is made here to highlight the seriousness of the commitment one is making to a lender, especially when then tempted to not occupy the property during that first period.

#househacking unspoken details

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Scott Bridgehouse

OP

Member since 2019 · 17 posts · 6 votes

3y

@Pablo Pereyra

Completely following you. Thanks for calling out those risks (got any other nuggets like that?) and talking through some of those mindset shifts that one can expect, where the before and after can certainly have some changes. Thankfully, I'm fully committed to the move. It will likely even be an upgrade from my tiny apartment here in Arlington, VA.

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Jay HurstBusiness Member

Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes

3y

Quote from @Harjeet Bhatti:

Quote from @Jay Hurst:

Quote from @Harjeet Bhatti:

@Scott Bridgehouse There are two options for buying 2-4 units- FHA with 3.50% down payment and Home Possible with 5% down payment. Although both programs has restrictions which borrower should know before they consider either product for financing. There are some banks who have their own CRA portfolio loan which can be used for 2-4 units. Wintrust mortgage has their own CRA portfolio product for 2-4 units with 5% down payment but that's in our footprint only. Try to find out if any of your local bank offer this kind of product.

Home possible requires that your income is 80% or less of the median income. and still requires 25% down for 3-4 units. Very few places where 80% of the median income is six figures.

Home Possible factsheet

Home possible factsheet shows fix rate has 5% down payment but if you go with ARM need higher down payment. It's good product if meets the requirement. With 2nd community lien can go higher CLTV.

yes, you are correct on the down payment was doing it too late last night. But. the 80% of median income is still correct and the biggest obstacle to most. It is very hard to be in the sweet spot to have income under the 80% median income and still qualify with the recent run up in prices, higher rates and with a high loan to value. There are some pockets in the country largely in the upper midwest but it is not all common. and everyone on this thread has left that very important fact out of the discussion.

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Loan Officer: 25% Down Payment Required For First Time Homebuyer House-hacking 4plex

Loan Officer: 25% Down Payment Required For First Time Homebuyer House-hacking 4plex

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