Conventional Mortgage: FHA House Hack advice

[Devin Arrigo]

Hi everyone,

I am soon to be a college graduate and will be moving to the Pittsburgh market in early June. My goal by the end of 2018 is to finance a duplex using an FHA loan and live in one unit while renting out the other. Obviously, being a recent college graduate, I won't have the cash available to buy outright, so I will need to finance using an FHA loan. Does anyone have expertise in this area of lending? Is it difficult for a new college graduate to get an FHA loan? Are there stricter requirements for FHA loans vs. others? When speaking with lenders, do they like to hear that I will be renting out the other unit or is it a non issue? Any help is appreciated!

Thanks, 

Devin

[Zach Lemke]

@Devin Arrigo

Keep in mind that there are two LTV limits for FHA loans. The 3.5% down option is only available for borrowers with a credit score above 580, while those with credit between 500 and 579 must put at least 10% down. Remember that unless you try to get a seller concession for closing costs or you wrap them up in the mortgage, you will have to bring some cash to the closing table in addition to the down payment.

As far as the rental income in the subject property being counted as income for the borrower, the FHA manual states that for borrowers with limited or no history of rental income from the subject property, the lesser of

1) NOI reported on Freddie Mac form 998

or 

2) 75 percent of either fair market rent reported by the appraiser, or the rent reflected in the lease agreement(s). 

So to answer your question, if you have no documented landlord experience, expect lenders to only count 75% of your rental income.