What is a better option using FHA

Question

I live in Waukegan, IL and decent homes can go from 50k-70k. I'm 21 and have 8k in the bank and I have enough for the 3.5% DP and all other cost to purchase a home around that price range. However, If I save a little more (12k-15k) I would have enough for a multi family home(anything from duplex to fourplex) at the price range of 100k to 150k here in Waukegan. I want to move out soon and I feel that a house at 50k to 70k price range is not a bad idea as I would still be young when I finish paying it off and can use it as a rental property and have full profit. However a multi family home would generate rental income instantly but it will take me much longer to pay off and have a larger monthly payment thus making it harder to make profit.

I'm getting a little impatient and feel like moving out of my parents house soon but is it a better idea to wait around another year to save enough for a multi or is a 50k to 70k home not a bad investment at my age?

I have the income + credit score + DP + I am about to complete two years at my Job.

I'm getting a little impatient and feel like moving out of my parents house soon but is it a better idea to wait around another year to save enough for a multi or is a 50k to 70k home not a bad investment at my age?

I have the income + credit score + DP + I am about to complete two years at my Job.

Conor Hesch · Answer

Hello @Angel Moreno were you asking if there was better financing than FHA ?  I used a Conventional 3% Down NO Mortgage Insurance option to get my duplex here in Minneapolis (it works in IL too) that made it really affordable and way less per month than FHA since there is no mortgage insurance.

Here is what I would do (it's not highly technical but it's been working for me)

• Buy a Duplex, use      the loan that I just used to buy my first duplex: Portfolio Conventional      Loan, 3% Down Payment, No Mortgage Insurance (yes this loan really      exists). This will make your monthly payment way lower than an FHA Loan.      The only loan other than this that I know of that would allow less down      payment would be a Veteran Loan (Vets only). Be alert, if you time it      right you might be able to get down payment assistance/grants (I got      $5,000 from a local program and used it to buy my interest rate down to      3.125% which is way below typical market rates for a Duplex). There      are also many down payment grants for first time home buyers right now.
• Don't start with an FHA Loan, instead use it for your      2nd Duplex...because the 3% down Portfolio Conventional loan that I used      requires that you do not own any other homes at time of closing. So start      with that then move to a 3.5% down FHA. Once you have an FHA loan you are      not allowed to have another FHA loan unless relocating a great distance      for work.
• Now that you have exhausted your Low Down Payment      Options (Portfolio Conventional and FHA Conventional and FHA) you      will need to use a Standard Conventional Loan and put 20% down to get your      3rd Duplex.
• The sky is the limit...you could continue to buy      properties and build an empire or just stop there and enjoy more free      time...I have friend who quit his job and just manages his properties now.

Keep in mind that this 4 step process I outlined takes time (anywhere from 1 to 10yrs depending on the person) so keep the big picture in mind but don't let it stress you out too much. Send me a message if you have any more questions and keep us posted on your success! GOOD LUCK !

William Powers · Answer

With $8K you could get a single family or even multi in Waukegan.  I am about to purchase a 2 unit in a good area in Waukegan for $55K.  Needs $15K in work and will rent for $1900 a month.  And closing on 5 unit for $110K.  We own and maintain just under 200 units in lake county - mostly Waukegan.  I would be happy to provide you some direction if you like.  Message me or come to our REIA meeting this Tuesday at 630PM.   LCPIA is non profit eduction group.  Waukegan is a great town with lots of opportunity.  Good luck.  Best Regards, Bill Powers (BP)

Rico S. · Answer

@Angel Moreno You are in a great position. I would also agree to go the multi-family route. I understand it will take a little longer to pay off but if you were to choose a primary home it would not provide any income unless its a multi-family. Thats what is it all about. Finding a deal where you can potentially live rent free. I believe having reserves are very important as you always want to be prepared for the unexpected. There are many different ways to go about it. Have you considered partnering with someone in your area with experience? You will have boots on the ground because you can add value by managing the property yourself. The partner can provide the support and guidance through the process.

Jaysen Medhurst · Answer

@Angel Moreno, sounds like you're closer than you think you are to a multi-family, which would be my recommendation.

3.5% of $150k is only $5500. Figure $2500 for closing costs and that's your $8k. I think another few thousand as a cash reserve.

I don't know your market, but multi-families are nearly always a better investment.

What is a better option using FHA

Most Popular Reply