FHA Owner-Occupied, First Home - Bad Idea Near Boise?

Question

Hello all,

I'm in my mid-20s, and have saved up enough to purchase up to around 300k property with FHA loan, and have a few months emergency fund left over.

For a while I've had the idea of purchasing a duplex or triplex, and occupying one of the units, letting the other unit(s) cover the mortgage/taxes while I pour what I'd be paying into rent into savings for the next property. Unfortunately, in the past year that I've been watching for properties, I haven't seen any properties even coming close to this.

I've recently been reading about this "1% rule" that investors aim for, and this is making me think this is not a great idea. I'm only seeing up to around 0.5% in the units I've been seeing.

I'm willing to go out as far as Emmett/Horseshoe Bend, but even casting the net that wide hasn't been very successful, either. It seems like as you go further from Boise/Meridian, the rents drop by a higher percentage than the property prices (this could just be a feeling rather than reality - I haven't done true side-by-side comparisons).

I would really like to find a place with a garage for each unit, or at minimum space to build a small shop, so that has narrowed my search some - however, I've been watching listings that do not match that criteria and have still failed to find any.

What advice do you have for someone looking to finally move out on their own, that would like to leverage the FHA opportunity to build a future? There are some times that I am just tempted to go with a nice "forever home" property (I've seen a few of them that are tempting) and be done with the idea of real estate investing... But I know this is an immediate gratification vs. long-term financial wellness decision, so have been holding off.

Jim Paulson · Answer

Another House Hacking tip to keep in mind if you are a First Time Homebuyer in Idaho is we recently passed a new First Time Home Buyer Tax Free Savings Account program. It is similar to putting money into a cafeteria plan for pre-tax health care, but this is saving money pre-tax for a down payment. It allows up to $15k per person ($30k for a married couple) a year. Therefore, put your down payment into the new savings account and instantly it is not taxed that year. :) I am not sure if this is just Idaho Tax or Federal Tax too. I am reaching out to a few people to find that answer though.

Jim Paulson · Answer

Nate, there are several loan programs available that are probably much better than FHA. FHA is good for lower credit scores, but using a 95-97% conventional loan will typically be cheaper monthly. Sometimes, you can do an 80% first and and 15% second so you don't have any mortgage insurance premium at all. Then make accelerated payments (if you can) to pay off the second since that typically carries a little higher interest rate. There is also the option of Rural Development loans that allow for 100% financing in some areas of the valley (Kuna, Star, and Canyon County except for Nampa/Caldwell city limits). Idaho Housing and Finance Association has great first time home buyer programs as well. If you can buy a multifamily property as an owner occupant, that is a great strategy if you can find the right unit (difficult in the Boise area now as you noted). Hope this helps.

Emma Brooks · Answer

For what it’s worth, Nate, my husband and I moved to Boise thinking we were going to house hack and have basically given up on finding a multi family here that pencils. They exist, I’m sure, but we have switched our strategy to looking for a live in flip since there seems to be much better options for that here in Boise. I know most people in Boise seem to think the market will keep going up and up and up, but eventually, that will slow down, and buying a property with the opportunity to force equity seems like a good way to insulate against the risk of a major covid related market correction. Renting here in Boise is a rip off, that’s for sure. Mortgage payments are much lower than rents. Good luck and keep us posted! Ever single multi family I’ve seen listed on the mls has made zero financial sense to me given cap rates, but maybe there’s something I’m not seeing!

Jaysen Medhurst · Answer

@Nate Ramsey, focus on 3- or 4-unit properties. Duplexes are very unlikely to make the cut.Give up on the garage and shop thing for now. Find a property the works as an investment, first and foremost. You're young and, frankly, at this point you don't even know what a "forever" home really looks like.If there's anyway you can go with a low-down payment conventional loan, instead of a FHA, do it. There is less paperwork, no up-front PMI, and monthly PMI will drop once you hit 78-80% LTV.What about something like this? What would the rents be here? I know it's above your current price range, but the bank should be willing to consider 75% of rents.

Chris Williams · Answer

Hmmm, interesting. Sounds like the Boise area's getting too hot too fast. I'd considered doing nearly the same thing as Nate (though I have more cash for the DP).

Jaysen Medhurst · Answer

@Nate Ramsey, with rents lower than $1k, that would a difficult to justify. I don't know your market at all, but I would guess with a purchase price close to $600k, the rents in that area would be much higher than that.As far as mortgages, you really need to do the leg work. Call every local bank and CU, especially the CUs. Tell them exactly what you're trying to do and see what products they have. If the say "no" ask them what would have to change for them to say "yes." Higher down payment, better credit score, etc.

Nate Ramsey · Answer

Than you for the advice, Jayson. What loan options do you have in mind? I've looked into some, but haven't found any that I can apply for other than FHA (they all seem to require prior military service, lower than median income, or no multi-family). That is well above my intended price range, which while uncomfortable would build equity much, much quicker than what I have been looking into. I haven't looked into that type of property at this point, so do not know what the rents would be. I have a friend's that was living in a similar unit in Meridian paying a bit over 1k/month, so would imagine it would be lower than that.