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Updated 2 months ago, 10/11/2024
First time homebuyer starting RE investing journey (House hacking multifamily)
I am a first time homebuyer looking to purchase a multifamily unit (duplex/3plex/4plex) in the San Antonio/ Boerne area. Ive been in contact with a real estate investor friendly realtor I was matched up with through the bigger pockets website. Next step is getting a pre approval letter. I have a list of lenders I have compiled through BP recommendations and recommendations from my realtor.
I work a commission based job and am on pace to make just over 6 figures for the first time this year. My concern is my bank account doesn't show that currently (I do have the paystubs to back it up). I don't have the money in my account for a down payment currently but have a plan to within the next few months. I have a 401k and other assets that could equal a down payment just not my checking account. I only have credit card debt with a minimum monthly payment of under $300.
Im wondering if it would be better for me to wait until I have the money in my bank account for a down payment, or at least another paycheck in the account (paid monthly) before I start shopping around for pre-approval letters. (Plan is an FHA loan)
If anyone can help me out with this it would be greatly appreciated! Also would appreciate any advice in general for someone starting out in real estate investing this way, or an insights on the SA/Boerne market.
Thanks ya'll look forward to hearing from you!
Hi @Tanner King, if you have funds to purchase, even if they are not in your checking account, there is no reason why that should stop you from getting pre-approved if you are willing to use those funds to help you purchase your home. There are a few possible programs out there for first time home-buyers that will assist with your down payment as well. Feel free to reach out to me with any questions.
- Raymond J. Rodrigues
- [email protected]
- 619-456-8311
To prepare for an FHA loan, ensure income stability and sufficient savings to cover down payment and closing costs. Consider liquid assets like a 401k as part of your down payment. Wait for a stronger financial picture and speak with lenders to get pre-approved for higher loan amounts or favorable interest rates. Focus on building savings, networking with investors, and exploring house-hacking opportunities.
Good luck!
- Wale Lawal
- [email protected]
- (832) 776-9582
- Podcast Guest on Show #469
Great to hear about the pursuit of a multi-family property! I picked up on that you were looking at using your 401k as part of the down payment. I can't say don't do that, however, you should consider a few things before raiding the 401k for down payment money, and maybe there are other options. Here are a few considerations with respect to the 401k:
1) Although you can take funds with no penalty for first time home buyer, you can't return the money to the 401k. 401(k)'s have unique tax advantages that allow for tax-deferred, or in the case of Roth, Tax-Free growth. One day, you might regret taking the funds from the 401k.
2) You could consider borrowing against the 401k, whereby you can borrow up to 50% not to exceed $50,000. You must make payment back at prime + 1%, and if you miss payments the balance is distributed, which can have severe tax consequences and penalties. That said, likely a better option than #1, and you are paying interest back to yourself.
Hopefully this helps some as you make your decision and congratulations in advance on your ambition journey to real estate investing. Tons of admiration for folks getting started. As a RE investor myself, the first one is always the most challenging... Keep working hard!
- John Bowens
Quote from @Tanner King:
I am a first time homebuyer looking to purchase a multifamily unit (duplex/3plex/4plex) in the San Antonio/ Boerne area. Ive been in contact with a real estate investor friendly realtor I was matched up with through the bigger pockets website. Next step is getting a pre approval letter. I have a list of lenders I have compiled through BP recommendations and recommendations from my realtor.
I work a commission based job and am on pace to make just over 6 figures for the first time this year. My concern is my bank account doesn't show that currently (I do have the paystubs to back it up). I don't have the money in my account for a down payment currently but have a plan to within the next few months. I have a 401k and other assets that could equal a down payment just not my checking account. I only have credit card debt with a minimum monthly payment of under $300.
Im wondering if it would be better for me to wait until I have the money in my bank account for a down payment, or at least another paycheck in the account (paid monthly) before I start shopping around for pre-approval letters. (Plan is an FHA loan)
If anyone can help me out with this it would be greatly appreciated! Also would appreciate any advice in general for someone starting out in real estate investing this way, or an insights on the SA/Boerne market.
Thanks ya'll look forward to hearing from you!
@Tanner King I lived in one unit of a duplex and rented the other as my first property in Dallas 20+ years ago long before it was called house hacking. Best real estate investment of my life for a lot of reasons including just understanding the basics of finance and being a landlord etc. So, great idea.
As a lender, I would give you a pre-approval letter as long as you had the assets (and meant all other requirements) even if the assets were in a 401k. You might have no intention of actually using those funds as such, but you could. During our conversation I would understand that the plan would be to have enough cash from payroll saved by the time you closed to use for down payment, and that is completely fine.
But, something to add that you have to understand is that a 3-4 unit has to be meet the FHA self sufficiency test. This requires that 75% of the rent the building brings in covers the entire payment including taxes, insurance and FHA monthly mortgage insurance. With the run up of multi family prices, relatively high rates and the 3.5% low down payment this is virtually impossible (outside of some markets in the upper midwest) to make happen.
Take note that this self sufficiency test does NOT apply to 2 unit buildings, only 3 or 4 units. AND you can know put as little as 5% down on a conventional loan, which is a better loan anyway if you can manage the extra 1.5% down, does NOT have this test for 2,3 or 4 unit buildings.
- Jay Hurst
Quote from @Raymond J. Rodrigues:
Hi @Tanner King, if you have funds to purchase, even if they are not in your checking account, there is no reason why that should stop you from getting pre-approved if you are willing to use those funds to help you purchase your home. There are a few possible programs out there for first time home-buyers that will assist with your down payment as well. Feel free to reach out to me with any questions.
Quote from @Wale Lawal:
To prepare for an FHA loan, ensure income stability and sufficient savings to cover down payment and closing costs. Consider liquid assets like a 401k as part of your down payment. Wait for a stronger financial picture and speak with lenders to get pre-approved for higher loan amounts or favorable interest rates. Focus on building savings, networking with investors, and exploring house-hacking opportunities.
Good luck!
Thank you Wale!
Quote from @John Bowens:
Great to hear about the pursuit of a multi-family property! I picked up on that you were looking at using your 401k as part of the down payment. I can't say don't do that, however, you should consider a few things before raiding the 401k for down payment money, and maybe there are other options. Here are a few considerations with respect to the 401k:
1) Although you can take funds with no penalty for first time home buyer, you can't return the money to the 401k. 401(k)'s have unique tax advantages that allow for tax-deferred, or in the case of Roth, Tax-Free growth. One day, you might regret taking the funds from the 401k.
2) You could consider borrowing against the 401k, whereby you can borrow up to 50% not to exceed $50,000. You must make payment back at prime + 1%, and if you miss payments the balance is distributed, which can have severe tax consequences and penalties. That said, likely a better option than #1, and you are paying interest back to yourself.
Hopefully this helps some as you make your decision and congratulations in advance on your ambition journey to real estate investing. Tons of admiration for folks getting started. As a RE investor myself, the first one is always the most challenging... Keep working hard!
Thanks for the response John!
I wasn't necessarily planning on using my 401k towards the down payment, more just to show that I have the funds for the pre approval. With income from my job I should have enough put away for a down payment within the next two months.
This is great information though and I will have to do more research myself. Love to have options. I appreciate the kind words and advice, I am ready to start this journey!
Quote from @Jay Hurst:
Quote from @Tanner King:
I am a first time homebuyer looking to purchase a multifamily unit (duplex/3plex/4plex) in the San Antonio/ Boerne area. Ive been in contact with a real estate investor friendly realtor I was matched up with through the bigger pockets website. Next step is getting a pre approval letter. I have a list of lenders I have compiled through BP recommendations and recommendations from my realtor.
I work a commission based job and am on pace to make just over 6 figures for the first time this year. My concern is my bank account doesn't show that currently (I do have the paystubs to back it up). I don't have the money in my account for a down payment currently but have a plan to within the next few months. I have a 401k and other assets that could equal a down payment just not my checking account. I only have credit card debt with a minimum monthly payment of under $300.
Im wondering if it would be better for me to wait until I have the money in my bank account for a down payment, or at least another paycheck in the account (paid monthly) before I start shopping around for pre-approval letters. (Plan is an FHA loan)
If anyone can help me out with this it would be greatly appreciated! Also would appreciate any advice in general for someone starting out in real estate investing this way, or an insights on the SA/Boerne market.
Thanks ya'll look forward to hearing from you!
@Tanner King I lived in one unit of a duplex and rented the other as my first property in Dallas 20+ years ago long before it was called house hacking. Best real estate investment of my life for a lot of reasons including just understanding the basics of finance and being a landlord etc. So, great idea.
As a lender, I would give you a pre-approval letter as long as you had the assets (and meant all other requirements) even if the assets were in a 401k. You might have no intention of actually using those funds as such, but you could. During our conversation I would understand that the plan would be to have enough cash from payroll saved by the time you closed to use for down payment, and that is completely fine.
But, something to add that you have to understand is that a 3-4 unit has to be meet the FHA self sufficiency test. This requires that 75% of the rent the building brings in covers the entire payment including taxes, insurance and FHA monthly mortgage insurance. With the run up of multi family prices, relatively high rates and the 3.5% low down payment this is virtually impossible (outside of some markets in the upper midwest) to make happen.
Take note that this self sufficiency test does NOT apply to 2 unit buildings, only 3 or 4 units. AND you can know put as little as 5% down on a conventional loan, which is a better loan anyway if you can manage the extra 1.5% down, does NOT have this test for 2,3 or 4 unit buildings.
Thanks for the response Jay!
That is great to hear!
That is exactly what my plan is and what my questions was. If I show all my assets now that equal a down payment to get the ball rolling and start shopping for properties in my price range, but plan on using income I will receive over the next few months as a down payment could that work. So thank you for answering that!
I was not aware of the self sufficiency test for 3-4 unit properties, that is great to know. I had been leaning towards FHA but may have to reconsider. Thanks again for all the great advice Jay!