Should my fiancé and I both get separate FHA loans to acquire 2 properties or go with a private lender?

Question

Good morning,

I am a rookie REI located in Essex County in Massachusetts. I am currently researching and creating a long term plan for my real estate investment. I was wondering what people thoughts were about my spouse and I acquiring 2 multifamily homes through government FHA loans?

I have plans to jump in and make my first investment purchase mid 2015 through utilizing an  FHA loan. I could scrap up a normal 20% down payment for one property instead of using the FHA loan but my fiancé and I thought it might be a better to instead purchase two separate homes individually using the govt. loan prior to getting married. We are not due to get married for another 2 summers and we would space the purchases out so that we can live in the homes for the 1 year minimum requirement.

Now I do understand that the FHA loans come with high PMI's but my thought is that the cash on cash return will still be higher due to us acquiring two investments.

Any thoughts?

Taylor

Lynn McGeein · Answer

If both of you qualify, you can each obtain an FHA loan before being married, and it sounds like your plan is a good one and a great way to start building an investment portfolio without using all your down payment funds at once, although looking into low-down conventional may be prudent as FHA fees have gone up so much and mortgage insurance with FHA now stays for the life of the loan, two huge detractors.  It is my understanding, however, although I may be incorrect, that the down payment will be higher on a 2-4, so you may want to ask about that first before making plans.

Also, it is possible to have 2 FHAs in one name.  We have it.  There are exceptions to the policy, which involve either moving a distance away for employment requirements or increase in family size, being able to prove that you need a larger home.   We moved for employment and qualified for another FHA after renting out our old primary.  They would not use the rental income towards the qualification of the new one, however.    We were even allowed the streamline FHA refi on the first home even though it was an investment property and we already had the 2nd FHA before applying for the 1st FHA refi.

Lumi Ispas · Answer

@Taylor Grabus , @Nathan Emmert and @Mike Yerardi , it is not possible to take more than one FHA loan at a time.

If you buy a property with an FHA loan, you have to live in for minimum a year, and unless you are refinancing that loan into a conventional loan at the end of the year, you cannot get another FHA loan.

I will advise you both to take a 3-4 units building with FHA loans or take a conventional loan as owner occupied with as low as 5% down. You'll still have PMI, however after 5 years, as long as you arrive to 22% equity in the property, all you have to do is pay for an appraiser and the bank will drop the PMI.

With the FHA loan, you can never get rid of the PMI. The only way is to refinance the loan, and with the interest rates going up in the next few years, it might not make sense to refinance, as your payment will go up.

Also, after a year of leaning in the property bought with a 3.5% down FHA loan, you can buy a second property with 5% down conventional loan owner occupied again.

Hope that answers your questions!

Connor Smith · Answer

@Taylor Grabus  I just bought my first duplex with the SONYMA Conventional Plus Program. It's very similar to the FHA loan. You put down 5% down payment but the PMI goes away after you reach 80% LTV. I did a search and looks like MA has a very similar program. It sounds like they don't even require PMI.

"MassHousing Mortgage with No MI: Fixed rate 30-year  mortages with up to 97% financing for single-family homes or condos, up  to 95% financing for 2-, 3-, and 4-family homes, and no mortgage  insurance requirement. Borrowers can be first-time homebuyers or  non-first-time homebuyers."

http://www.massresources.org/masshousing-loans.htm...

Daren Card · Answer

No, unfortunately, no one answered the questions directly. Perhaps someone with some serious house hacking experience with a spouse might have some insight.

Chirag Gulati · Answer

@Daren Card Great questions, Did you manage to get answers?

Daren Card · Answer

@Savannah Lewison Thanks! Yes, me too, but perhaps my long post scared people. Hard to ask very nuanced questions briefly!

Savannah Lewison · Answer

@Daren Card I was hoping some people would have replied by now! Great questions.

Daren Card · Answer

Though a few years old, there is some good information in this thread that answered some questions I had about more than one FHA loan. However, I have some follow-ups that weren't totally answered here that I was hoping others could shed some light on.

1. From this thread and elsewhere online, it appears that @Taylor Grabus and his fiancee (now wife, I'm assuming) could independently apply for an FHA loan for independent houses in parallel (requiring them to live apart) or series (1 property 1 year, the other property the 2nd year, or something similar). This is possible like this because they are not yet married. However, as I understand it, once a couple gets married their combined debt (but not combined income) is considered for the loan even if they apply for the FHA loan in the name of only one person. Hopefully I'm understanding this correctly?

My question based on a married couple instead is whether the resulting FHA loan includes both of the partners (i.e., the entire married couple)? Or is it only in the name of the person who applied only (the husband, let's say)? If it is the latter, would this enable the other partner (e.g., the wife) to seek a separate FHA loan in his/her name, allowing the couple to have 2 FHA loans simultaneously? They'd obviously have to live apart or do this over a few years to meet the residency requirement of FHA. For this question, let's ignore the fact that because combined debt (but not combined income) is considered for each loan, the total loan amount would probably be reduced compared to what a single person with similar income/debt could obtain.

2. The MassHousing mortgage mentioned by @Connor Smith (a fellow Western NYer, like me!) is a nice program. I'm looking to move to and invest in MA and will consider the program. In regards to the discussion of 2 FHA loans, would it be possible for a married couple to secure a FHA loan in one name and a MassHousing loan in another name? If so, does the MassHousing program follow the same rules as FHA when evaluating the income/debt of a couple? Same sorts of assumptions as above, just a different combo of loans. I'm assuming one partner would apply for MassHousing for the first purchase since it is only for new homebuyers. I'm also assuming that they are able to gain 20% equity in the property before pursuing the 2nd property and FHA loan, which would allow them to refinance out of the MassHousing loan if they were to move as a couple and not separate, since MassHousing requires residency for the entire loan period.

@Lumi Ispas: I also hadn't realized that owner-occupied conventional financing allowed as low as 5% down (but added PMI), so I will look into that more as well.

Thanks in advance for any insight others can provide!

Taylor Grabus · Answer

@Lumi Ispas I understand it is not possible to have two FHA loans per person. Although if we both acquired FHA loan prior to getting married then I was thinking that it may be possible.

I appreciate the long term insight on refi. It is most definitely something I will take into account!

@Connor Smith Thanks for the link! It sounds like another potential option.

Taylor Grabus · Answer

@Mike Hurney Thanks for the advice! I plan on looking into getting pre qualified.

Should my fiancé and I both get separate FHA loans to acquire 2 properties or go with a private lender?

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