House Hack With Non-Conforming Garden Apartment

[Paul Schaefle]

Your goals and story: I have a multifamily home under contract. I am planning to "house hack" by living in the basement unit. The property is only permitted for two units, but there are a total of three units. The basement unit is a 2-bedroom with a kitchen, bathroom and living room. I was in the process of getting an FHA loan, but the funding fell through because, while I meet the income requirements when three units are considered, I do not meet the requirements when only two units are considered. The appraisal states that the property is two units, so when considering the income, my lender considered that I would only be getting income from one of the units, not from two. I'm sure this has come up before. Can anyone give me advice for overcoming this challenge?

Type of property: Three unit multifamily

Location of property: Chicago suburbs

Purpose of financing: long-term, with the intent to refi into a traditional loan when I have enough equity

Type of financing sought: FHA

Current or prior ownership of real estate: Currently own no other real estate.

Occupancy: owner occupied

Value of property at present and/or your offer price: $330's

After repair value: $ N/A

Anticipated or actual appraisal issues: Yes - Appraisal value is fine, but the appraisal lists two units, not three.

Current rents per month: $2700

Fair market rents per month: $3000

Down payment or equity: 3.5% FHA

Source of down payment funds, if applicable: own funds

Income Source: Salaried/hourly W2, 

Gross monthly income: $3,300

Monthly debt obligations appearing on credit report, plus (if applicable) personal rent and alimony/child support/etc: Student loans: $250, car lease: $275, current rent: $950

FICO: Excellent

Credit issues: none

Additional details: