Fourplex purchase with FHA 3.5 down in pricey Alaskan market

[Jennifer Newby]

Hoping to get some insight on an opportunity I have. There's a fourplex I'm looking at, seller asking 550,000 that I can qualify for with an FHA, 3.5% down, using the rents from 3 of the 4 units. I love the idea of using the economy of scale, the great condition of the fourplex compared to most homes in our area, and the potential for much greater equity build-up from renters, than I'd normally be able to support with just a median income and not having 25% to put down. With mostly all new appliances, I'm guessing that cap ex and repairs should be relatively low. Gross rents once I'm out of the place should be around 5700, for the year I'm in will be about 4700. Monthly payments will be about 3600 (principle, interest, taxes and insurance, incl. PMI). Curious on the insight from others who have either used this approach, or who have sage council in this area. Our island in Alaska offers mostly pricey SFH ranging from 250-400k and I don't see many opportunities there. Thanks!

[Nicholas Covington]

@Jennifer Newby

Hello. First off I would like to say that for FHA programs the correct term would be MIP which is mortgage insurance premiums. MIP and PMI are two different things as they are associated with their given loan program. A lot of people get this mixed up and end up not making correct choices.

You cannot cancel MIP on an FHA loan as that is only a thing for PMI on conventional loans. There, however, are certain minimum criteria to how long MIP can last and it's either 11 years OR the life of the loan. To get 11 years of MIP you would have to put down ATLEAST 10% for an LTV <90%.

Granted 11 years can still seem like forever, but the key difference is that MIP is based on LOAN amount and not equity. So your home could appreciate over the given years but it will not cancel out MIP even if you become under the 90% threshold.

Here is a link to the show you an example on how MIP is calculated for FHA loans:

https://portal.hud.gov/hudportal/documents/huddoc?...

Hope this helps!