Buying strategy with FHA

[Foster Lynch]

Hey BP!

After much searching, I believe I have found a multifamily that I would like to submit an offer on. The pinch is that because I am using FHA, even though its a "3 unit", it is only a legal 2 unit. This means that my max FHA loan amount is much lower than the asking price.

Additional details
asking price - 600K
max 2 unit FHA loan amount - 471k

total available cash for a down payment - 40k

this means even if the seller accepts an offer at 540K, I would need to find an additional 29k so that I can qualify for the FHA loan criteria.

what would you do in this situation? the third unit is a great unit, its just that the ceiling is too low to be legal.

Thanks for the help!

[Jason Albasha]

$471k loan max + $40k down payment = $511k is your max budget.

Unless you're willing to borrow money from some friends/family, hard money lender, etc. then your max purchase price is about $500k for this; unless you can find a property that's "self sufficient".

That third unit is great yet you have to trust the tenant. If you have issues, you have no rights as a landlord. In the eyes of the law, you are selling something that you shouldn't be, so it's great to get that extra $1,000 in your hand every month yet understand that this is illegal (even though everyone does it!). This is why the bank does not recognize it; not only is it illegal income, it can also end at any time if the city makes you rip it out.