Recommended Finances To Purchase a Fourplex as a first time buyer?

Question

I found a fourplex located in Cleveland which is worth around 220k and want to purchase it. According to its description, it is actually a triplex + single house in a single lot, seem perfect ideal for a househacker. However, the seller only plan to sell it "as-is" condition and will not accepted any FHA loan to which my previous offer include it was rejected. So, what are avaliable finance I could use to make a great deal offer to that fourplex? I also add my budget detail below for your analsysi:

My real estate goal is to earn a decent cashflow locate in Cleveland through a househack and I have a max budget of around 40K. I want to apply a FHA loan because of its great low down payment 3.5% for a fourplex. Though there are few issues: FHA offer is not accepted by seller and second, even if FHA is accepted, I need at least 2 months worth of rents to meet FHA's guideline.

What are your recommended finance to use for fourplex?

Tanner Pile · Answer

@Aaron Kelly Have you looked into doing a 5-10% down conventional loan? Could be an option if the repairs are not too tremendous. You could also bring in a partner for just the rehab and pay them back monthly on an agreed upon interest rate.

Good luck!

Aaron Kelly · Answer

I never heard about 5-10% down conventional loan before. There was one I found via other forums within BiggerPocket like a gem says that you could actually do 3% or 5% convention loan using a Freddie Mac's Home Possible Loan, you just have to be eligible below or equal to the 80% of the annual salary income zone in a map. Based on its eligibility tool map, Cleveland's 80% annual salary income zone is around $68k while my salary is $70k which made me unqualified from get one.

Note, the Home Possible Loan allows lower downpayment with a conventional loan while you are under eligible and your loan is also flexible with PMI. It means your mortgage will not be lock with PMI for the entire life of the mortgage and can be remove when you reached or more than 20% equity, compare to most FHA.

(By the way, I used to search market at Austin when I met its salary zone of around $90k but realized I might be risk of unable to pay mortgage due to relative scale based on massive purchase price upfront)

Second, where would I find some such "gold mine" lender who offers 5-10% down conventional loan? I made contact to numerous lenders like 7 and none of them offers such flexible options like this. When it is come to search for a lender and compare it, I often used a LendingTree to help me find multiple companies with match criteria.

Doug Smith · Answer

If it needs a lot of work, getting it past an FHA appraisal may be difficult. I'm not trying to rain on your parade, but you might need to bring in a partner to get the down payment a bit higher for the deal and use a bridge loan to get the property up to snuff and rent. Once you do that, you can turn to a cash-out refi using a commercial style DSCR loan or some other vehicle to get you across the finish line. A 203K does allow for a 4-unit, but I would have to run this particular property by an underwriter to make sure as it's not a standard quad. I would still run the FHA bid by the seller, assuming your lender will do that deal. They might simply not want FHA because of the property condition, but if you can get your lender to sign off on the property itself, then that might persuade a seller to accept a 203K loan. Good luck!

Bud Gaffney · Answer

@Aaron Kelly house hack 3.5% down

Patrick Drury · Answer

@Aaron KellyI can send over my go-to low-money down owner-occupant lenders in Cleveland.

Vadim F. · Answer

@Aaron Kelly Have you done your info on the the area the property is in? Cleveland is a very tricky market and some areas are street by street.

Scott Mac · Answer

Why will this person not accept an FHA loan?

Wants a quick all cash close?

Others have tried and failed, meaning possibly knows the property will not pass an inspection (6 layers of roofing, or no heat or some other major flaw)?

Maybe punch back with an OWC offer--and a home inspection done by a proper home inspector with a written report, plus a survey to know if you have one lot or two (one transaction or two).

You will probably want a local closing attorney who knows how to make this happen safely for you (draw up the needed paperwork, deed(s), etc....

And if you are not a Hammer Swinging type guy, you will probably want to get bids to do the Fix-ups you want to have done when you take over.

You may have to pay a contractor (or two) to walk through with you for a bid (some places are like that).

If it has knob and tube wiring, or some other obsolete electrical (stab-locs, aluminum wiring, etc...) it would be smart to get an electricians opinion and bid, and make sure you can get reasonably priced insurance with this type of issue.

Good Luck!

Recommended Finances To Purchase a Fourplex as a first time buyer?

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