FHA 203K Loan

[Tre DeBraga]

whats up BP community. Does anyone have any experience with using an FHA 203k Loan on a multi and turning it into a house hack in Massachusetts? I have been very interested in house hacking for some time but it is hard to make the numbers work. I have came across the 203k loan where the numbers might work better if I find a good deal but there is alot that comes with the 203k loan and I want to make sure I am heading in the right direction.

[Bryan Maddex]

FHA 203k is an amazing product and under used! One thing to be aware of is the FHA multifamily self-sufficiency calculation which determines if a property can generate enough rental income to cover its mortgage payments. The calculation uses the following formula:

Total Rent Potential x 75% ≥ PITI (plus HOA if any).

With a 203k Renovation loan, you can also finance in your payments if you are doing a major rehab. 

Also, the term "house hacking" is generally used for your owner occupied home (renting out rooms in your primary home) and that income cannot be used to help you qualify (it is considered boarder income).  In this case, you can use Rental Income from the units that you will not be living in and that income can count to help you qualify.

FHA rates are going to be lower than conventional for you almost always, but FHA does have a 1.75% funding fee. FHA is easier to qualify for and allows for higher debt to income.

If you have not spoken to your lender already, you should also just look into the HomeStyle Renovation loan. You have to put 5% down vs 3.5% down, rates are usually higher, but if you have strong credit, your PMI cost can be cheaper than that of FHA loans. No 1.75% funding fee so conventional loans typically have less closing costs. Lower debt to income allowed as well for conventional.

The main differences (besides rates/underwriting guidelines) is what you can include in your renovation costs. FHA does not allow you to do things outside of the home like adding a fence, hard scaping, retaining walls...   it does allow you to repair things outside of the home to a limit.  Conventional would allow you to add a fence or do yard work in your bid.

I cannot lend to you personally in MA but happy to answer any general questions about the 203k or other Renovation loan programs!