House hack - rinse and repeat?

Question

I bought and moved into a 2-family duplex about half a year ago now, with a FHA mortgage and 5% down payment. In the next 6-12 months I want to attempt the same thing, but of course with a conventional mortgage this time due to the restriction of having only 1 FHA loan at a time. A couple things I'm curious about:

Is there a general rule of thumb regarding the minimum down payment percentage? For example, before I chose the lender I went with earlier this year, I had discussions with a mortgage person from Chase who mentioned it would have to be 15% down payment after I told them I was looking for a 2 unit multi-family. Are there any lenders that allow 10% down payments for a conventional mortgage on a 2-unit house, and does the fact that I'd be keeping my current residence after moving into the new one affect that in any way?

And second, if I plan to convert the unit I'm currently living in into another rental after eventually moving out, would I still be able to keep the FHA mortgage despite the house no longer being owner-occupied?

Brandon Rush · Answer

Hey Pat,

If you are going to owner occupy, you will probably be looking at, at least 15% down, most likely 20% down for a conventional loan on a multi family. You may be able to find a lender offering 10% down but its going to be tough, but definitely possible. You may have to call around to a few local banks to see what they can offer. Neve settle for what one bank tells you is possible.

If you move out of your current residence which has an FHA mortgage, you will be able to keep the FHA loan on it whether you continued living there or not. But, you will not be able to finance another property via FHA as you are only allowed to have one FHA loan at a time. If you have a "girlfriend" who you are not married to, you could potentially have them purchase a home in their name under a FHA loan. It gets a little sketchy doing that but many do.

Andrew Ager · Answer

@Greg Dorn question about the income /rent percentages.

I house hack my current property and receive 75% of the mortgage from those tenants leaving me responsible for the other 25 percent . If I want to buy another property , bring my current roommates to the next and turn that property into a full time rental , can I only use 75% of the mortgage as income to qualify for the new loan ?

For instance the mortgage is $1000 I am receiving $750 taxable income and $750 reportable income towards the new loan criteria?

Pat Needham · Answer

@Kenneth Gore I actually ended up doing an FHA streamline refinance at the beginning of the year, which reset the 12 month owner occupancy requirement but it dropped the monthly mortgage payments by ~$250. I did coincidentally speak with a potential mortgage broker within the past week and they confirmed the minimum down payment for another 2-family would be 15%.

Had I not done the refinance, I still wouldn't have had enough saved up for that down payment a few months ago given the price range I'm targeting, so everything turned out pretty well.

Kenneth Gore · Answer

@Pat Needham,  what did you end up doing for your second purchase. Did you get a good percentage?

Greg Dorn · Answer

So self sufficiency is not required for duplexes (it is particular to FHA for 3 and 4 unit properties). Also for the 15 percent I was referencing what I was personally qualifying for to refinance out of my VA and into a conventional loan but standards do change regularly.

I personally decided to just do an interest rate reduction loan (available for VA and FHA) for the current home to lower the interest rate. Down side of the VA and FHA loans is they have a built in mortgage insurance (Funding fee and MIP) but for us the funding fee on a VA interest rate reduction loan is really low. Then for the next one we will just do a larger down payment (20 percent if a multifamily or 5 percent if it is a single family).

David M. · Answer

@Greg Dorn

NB. The down payment requiresments for a multi family using a conventional an is not one number.  Google it.  For a four family it’s something like 20%-25%.  For a duplex it’s less.  It depends on the number of units.  It’s part of the terms for being a conforming loan

Then there is also the self sufficiency requirement...

Greg Dorn · Answer

So I am in a very similar position (and I have my loan originators license so doing lots of research for myself). We have been in our duplex since April of 2019 and bought it on a VA loan.

The 2 options I have is to refinance out of the VA loan and into a conventional loan so we can use the VA again OR to leave the VA loan in place and start saving for a down payment. Either way for a multifamily property a conventional loan wants 15% equity/down payment.

You do not need to refi your current loan if you are leaving unless you want to do another FHA loan. But if you are going to refinance out of it make sure you do it before you leave.

And a note on the income qualification, You cannot use any projected income from the unit you currently occupy (only 75% of the rents from the other unit can be used to qualify).

David M. · Answer

@Pat Needham

The min down payment requirements for multi-families are regulated for conforming conventional loans.  A quick google will bring up the chart for you.

House hack - rinse and repeat?

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