Low/No money down financing for our first multifamily househack

[Roy Palmer]

Hi! 

I'm 22 years old, from Minneapolis, MN.

My girlfriend and I are looking to purchase a multifamily home for a househack this Spring. We have been looking into low/no money down programs such as Neighborhood LIFT and NACA. We would likely be able to afford the downpayment on an FHA or conventional loan, but looking to save $ where we can. We don't plan on staying in this property for the long term, probably just a few years, before doing another househack. Some of the low/no downpayment financing programs say that you must live in the property you financed with them for the entirety of the mortgage term, which would ruin our plans to househack multiple times before settling down in a single family when we are ready to start a family.

Any tips/advice? 

[Evan Kraljic]

@Roy Palmer I think you're wise to be looking into programs like this even if you can afford a low down payment. It's very important to preserve liquidity when possible starting out, as that will allow you to solve any problems that could come up (property or tenant issues) and for planning your next moves. And it's clear you've already done your research, because while NACA is an incredible program for homeowners, it may not be a fit someone looking to househack multiple times since they require you to stay at the property, as you alluded to. I know a loan officer who offers a down payment assistance program through his bank that is actually specific for multifamily properties that could work great for you, although I know it has certain qualifications so you'd need to check with him to verify, but he can definitely tell you what loan and down payment assistance will work best for you based on your situation future goals/aspirations and allow you to treat your real estate investing journey like a game of chess - thinking several moves ahead.

Some things to consider - If you're geared towards building up units and cash flow and willing to live in a 3 or 4 unit I'd recommend doing that first, since bank underwriters are more likely to let you move from a fourplex to a duplex, but not the other way around, assuming you're utilizing an owner occupant low down payment loan (wouldn't matter for strictly investment property, as you'd expect). With that said, if you're going for a 3 or 4 unit I would not recommend FHA for your first loan as it has a self sufficiency test where 75% of the rents need to exceed the PITI payment, which is hard to find in our market especially at the current interest rates. Note that duplexes don't have this stipulation. The first loan I used was a HomePossible 5% down conventional - it has lower PMI than FHA, no up front mortgage insurance premium charge (I think this is 1.75% of the loan amount, charged up front), and doesn't have the stigma associated with FHA that some sellers will perceive (I think this stigma can be avoided with a good agent/lender to make your case, but figured I'd mention it regardless). I also was able to get a $1500 borrowsmart grant to cover some closing costs which I believe is still available depending on the lender you work with, not a huge amount but this was over 10% of my closing costs on my first cheap duplex, so not insignificant either! The income limit for this loan in 80% of the area median income which, is actually a pretty high # at $94,240 in Hennepin county. I do know of a construction loan for house hacks where you could potentially bring zero money to closing if the deal is juicy enough (high after repair value once work is done), but I honestly wouldn't recommend that for a first investment unless you're comfortable with the construction process. It would also be available after you've used 5% down conventional and/or 3.5% down FHA loans so maybe once you've taken on a rehab or two you have that as another tool in the toolbelt for you.

Let me know if you have any other questions!