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Updated 23 days ago, 12/13/2024
House hacking with a primary home
Good morning BP. I have a question on house hacking. I currently have a single family home as my primary and two investment properties. One sfh and one duplex. I want to purchase a triplex that I saw for sale. Would I be able to purchase that if I tell the lender I have the intent to live in there and be able to put down 5% and if so what do I need to tell them about the current primary. TIA
Vince
@Vince Nguyen Yes you can absolutely do that, but there are lender specific guidelines you have to meet.
Some of the specifics are credit score, DTI, signed lease agreement, and whether or not the lender accepts rent (house-hack) as income. If they do it increases your odds of getting approved. If they don't you personal financial situation plays a bigger part in securing a loan. I can guarantee you'll need documentation of lease, and rental insurance before closing on another home. If you work with the same lender that may speed up the process but expect a typical 30+ day closing. It's never a quick closing with conventional loans.
Shop around with local lenders, ask these questions, and get answers before you try to buy the triplex.
Hi Jaron. Thanks for the quick response. Are you talking about documentation on lease and insurance for my current primary home or for the new home. I wouldn't have it for my primary since I'm still living in there.
@Vince Nguyen Current primary. That's the predicament of using conventional financing. The lending is strict but the terms are great. It doesn't have to be occupied by tenants, just a signed lease + deposit. You'll have to bridge that "gap" or come up with more money for the DP before purchasing the triplex. Some people pull a HELOC on there current property to do it, but it's like robbing Peter to pay Paul. If you already have a super low rate a cash-out ReFi doesn't help. Just depends on your current rate, strategy, future cash-flow, etc.
If you’re serious about this endeavor put your current home on Zillow to rent with an occupancy in 90 days before you sign a PA for the next house.
There are other lending products that are not as strict but the terms are different. I'd research them before you buy. Best of luck man.
HI Vince, as long as you are vacating your current primary home and moving into a new primary that is acceptable, but just make sure you obtain a 12 month lease in order to use the rental income to offset your mortgage payment and not getting hit twice for your current mortgage and new mortgage. Also, if the triple is a legal multifamily, you will be able to use the other 2 vacant units at gross rent of 75% to lower your monthly mtg payment.
Thanks Matthew. What if my intentions were to move in but circumstances things change and I can not. Will I get in trouble.
Quote from @Vince Nguyen:
Thanks Matthew. What if my intentions were to move in but circumstances things change and I can not. Will I get in trouble.
Well it will need to be life changing events like having kids, new job, divorce, taking care family members etc but the rule of thumb is to live there for at least one year then being able to rent it out and converting it into an investment property. However, if you do plan on getting a HELOC, you might also want to get a line before moving out since rates are lower and CLTV is a lot higher for primary helocs! Just a thought...
Hey Vince, sounds like your portfolio is pretty great! Congrats on building that :)
As far as the ability to purchase it as a primary with 5% down, yes you definitely can. Doing this is how I've build my portfolio from 1 to 4 homes in the last few years. That said, there are some things to consider....
The reason the other people on this thread were talking about a lease is because of your debt to income ratio. The lender will need to be able to prove on paper that you can afford all those mortgages with your job income and the rental income that you have. So you may not NEED a lease signed for your primary residence already, especially since that's a lot of stress to find a new tenant and have a lease in place while you're under contract on another home. However, if your income can't support the debt of the mortgages plus whatever else you may have (car loan, student loans, etc) then you may NEED that lease signed in order to offset some of the debt. Hope that makes sense and explains the why behind it. I find it helpful to know the 'why' to help understand and move forward.
I would 100% recommend you talk to a lender and get preapproved before moving forward on the triplex. A good one will be able to take a look at all your finances and let you know whether you need a lease or not on your primary residence before you qualify for the loan.
The lease would need to be a year long lease, most likely, if you need to go that route. STR and MTR income can't be used unless you've had it consistently for I believe 2 years. Its variable, so they need to see the trend over two years to be able to average out what a monthly average income is for a property.
And your last question...if you tell the lender that you intend to live in the property and then don't move in and rent it out instead, that is 100% considered mortgage fraud and is a big deal. The only exception to this is if life circumstances happen and you CAN'T. Primary residence mortgages require you sign documents stating it will be your primary residence and you'll live there at least a year. After that you'd be free to move back into your single family home property if you so choose.
Hope this helps, and good luck.
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Quote from @Vince Nguyen:
Good morning BP. I have a question on house hacking. I currently have a single family home as my primary and two investment properties. One sfh and one duplex. I want to purchase a triplex that I saw for sale. Would I be able to purchase that if I tell the lender I have the intent to live in there and be able to put down 5% and if so what do I need to tell them about the current primary. TIA
Vince
It's not unusual for people to move into a new property. It can sometimes happen even shortly after buying a unit - life forces change sometimes. However, I think your bigger issue is going to be putting 5% down on a small multi-family. I don't know any lenders doing this other than possibly the VA (can anyone confirm/deny this?) Speak to a lender you can trust about this. If the property has multiple meters they're most likely going to see it as an investment property and I think you're going to be hard pressed to find one doing 5% down. It's also going to be difficult to cash flow in most markets if you ARE able to put down 5% but if cash flow isn't your goal, then that's irrelevant.
Bonnie, I'm currently trying to see how I can scale more with real estate without having to put a big chunk of cash and house hacking was something that sounded interesting. In todays market it's hard to scale when you need to put 20-25% down with renovation. Thanks for the response.