FHA Financing/House Hacking

[Ory Kelley]

Hey guys,

I'm a novice investor in cincinnati and just purchased my first duplex. I bought it under a FHA style mortgage. I would rather just rent both sides and not move in as to improve my cash flow. Also my lender told me that I could refi in 6 months and go get another FHA and do it all over again, is it possible to hack my way into another one so quickly? Anyone have any experience with this type of strategy? Do you foresee any issues if I do not move into each property?

[P.J. Bremner]

@Ory Kelley

My first property was purchased with an FHA loan and I used my parents to co-sign because my first job out of college was commission based and they needed 2 years of W-2 to use commission income. It is definitely possible. I also refinanced 9 months later into a conventional loan, took my parents off of the loan and dropped the MIP (FHA version of PMI) and was able to qualify for another home purchase shortly after. I did not go FHA for my second purchase because I wanted to avoid deal with MIP and refinances again, did 10% down conventional loan with LENDER PAID PMI (they raised the rate to pay the mortgage insurance ahead of time).

As far as living in the unit for a certain period of time, this can be quite the gray area.  Mortgage fraud is a serious offense, but I don't think this is one of those cases.  The ideal period to stay in the house is 12 months.  I've been told by lenders that you can qualify for another mortgage after 9 months with a legit excuse (moving closer to work, bigger house for the family, cheaper house to lower bills, etc.).  Another thing I have been told is that INTENT is not the same as REALITY.  You must INTENT TO OWNER OCCUPY the property.  You can have all the intent in the world to live in the new duplex you just bought, but what if your parents get sick and you have to move home to take care of them.  Do you really think a mortgage company will take you to court for mortgage fraud because you decided to help family instead of fulfill the clause on the note?  Also, if you get a mortgage and make payments on time in full, do you really think the mortgage company is going to look into your case to see if you are legit?  This would be business suicide, to take a PERFORMING NOTE and turn it into a NON-PERFORMING one?  No way.  Get the mortgage, pay your bills, stick to your plan, don't ever commit fraud to harm others (getting owner occupied loans and moving out early isn't hurting anyone unless you stop paying your bills), and keep on pushing forward.

@Conor Aylward

Great question! As I stated above in this reply, I had my parents cosign for me as non-occupants to help with income qualifying. As a parent, you can also gift down payment to your child to help, so that should cover all the basis. They will base the rates and qualifications on the occupant's credit I believe, so if she is a "ghost" (no credit history) then that might be the only road block you come across. Definitely get in touch with a lender in your state that knows FHA loans inside and out. I was a loan officer in 3 different states for about a year, I know the FHA guidelines are super lenient so I would say you should be good to go but definitely get pre-approved (NOT pre-qualified, which means absolutely nothing) with someone in your state to be sure.