Can you buy a fourplex with NO income and NO money down?

Question

Let's say a friend is willing to sell you a fourplex for 80% of its value. Let's say you have no income and no money. You will owner occupy the fourplex. The other 3 units rent out for more than enough to cover the mortgage payment. In fact, I know that lenders use 75% of the projected rental income to qualify you for a loan. So, what if the 75% of the projected rental income is enough to make the full payment? And since your friend is pretty much "giving you" 20% equity, you don't really need a downpayment, right?

So, in this situation, would you be able to get a mortgage loan with no income and no money down?

If not, what if you have some little income, like $500-$1000 a month, would that make a difference?

So, in this situation, would you be able to get a mortgage loan with no income and no money down?

If not, what if you have some little income, like $500-$1000 a month, would that make a difference?

Albert Bui · Answer

What Tom mentions is true if you use the conventional financing product to purchase the property but then you'll need income to qualify because the way net rental income is calculated is different on a primary residence than on a investment/non owner occupied property.

On a primary net rental income is used as a part of your total income as opposed to being netted from the monthly mortgage. This may not sound so huge but it is because how the math works its pretty much way less advantageous and makes it so that in almost all cases you will need your own income (or coborrower) to qualify.

On an investment property net rental income of all 4 units (assuming a fourplex here) is used to "net," against the mortgage monthly payment and if the resulting number is positive then no income is required to purchase this property but if the number is negative then you have to have more income to qualify for that "negative," liability each month.

Investment properties also need 25% down on fourplexes in most cases while primary fourplexes only need 3.5-5% down (FHA or Home possible freddie mac conventional).

Albert Bui · Answer

In theory, you could if you take contol of a fourplex via Sub2, Land Contract, lease option or purchase option (very little money but not no money, need money for upfront option) then you could season your rents or receipt of rents depending on the loan you're doing, and then refinance out of the control instrument or contract into a conventional 30 year fixed.

You will need qualifying credit - 620 + ficos and cash reserves to qualify as a non owner occupied property.  These cash reserves can be brought in from another coborrower who has the reserves or cash if you literally have no money at all.

The income calculation is much more favorable as a non owner occupied property.

The above will work as long as the gross rents of all 4 units X 75% is greater than the PITI of the property each month (prin/int/tax/insurance).

The above will only work for .01% of RE investors who have learned how to use creative financing techniques to obtain legal control over real property (real estate) and combine that with conventional financing guidelines.

Most conventional lenders have never paid off a property that has been controlled by a land contract, a Sub 2 contract or subject to, Purchase option, or lease option.

So it will take a good team, a good lender, a good attorney to help you review those contracts to make sure you're missing anything in your particular state.

Best of Luck.

Tom S. · Answer

@Ellie Narie  If you're living in it, you can probably get away with 5% down.  In my experience, when purchasing the bank will use the lower of the appraisal or purchase price.  So if for example the place is worth $100k and your friend is selling at $80k, the bank will probably want $4k down (80k * 5%), plus closing costs, and usually plus reserves.

Depending on the bank, they may require income sufficient to cover the entire mortgage payment.  You'd have to shop around on that.

Good luck!

- Tom

Nicholas Sheridan, Jr. · Answer

I don't have a background in mortgages but I would say that any steady monthly income is way better than no income at all. It is all about risk. Even if you do qualify for a loan when you don't have a job you will probably get a high interest rate because the bank is taking a higher risk in lending you money vs someone with a full-time job.