All Forum Posts by: Bo S.

There are secondary lenders for people that can't qualify for bank financing. Terms will definitely be higher, somewhere between 5-8% for either a 5-yr ARM or 30-yr loan. But still cheaper than your traditional hard money with double-digit interest on a 1-yr loan.

They still have minimum credit score requirements though, I think 640+.

1) correct unless if that roommate was your caretaker and you were disabled

2) you don't have to move out, it's just a Strategy you can implement  that Allows you to avoid departing residence classification 

3) no equity required to use rental income to qualify upon vacating your current primary unless if your departing a fha financed house for a second fha loan (apply for a second fha under one of the four exceptions allowed by fha) then you need to buy 100+ miles under departing residence rules AND you need 25% equity to get that second fha loan. But your current residence is conventional anyway so this irrelevant but none the less here to help someone else looking for a 2nd fha loan. The key here as complex as it seems is it determine.... If you need to use rental income offset to qualify or not ? Then is your current home loan a fha loan or not?  If the answer is no to both of those then none of this 3rd bullet point matters.

4) yes sell your current house and use 5% down with no monthly MI home possible freddie max conventional to buy a fourplex and house hack it 

I closed on my first purchase (primary residence, 3 bedroom and renting the other 2 rooms to roommates) one month ago. 5% down on a 30 year conventional with an 805 credit score, though my lender gave me a 2% grant at closing so I really only put down 3%. My initial interest rate was also 4.125%, though they offered to give me another $1350 at closing if I bumped it to 4.25%, which I took. 

Since I ended up putting so little down on my primary and have savings left over, last week I was pre-approved for 25% down on a duplex out of state at 4.75%. 

FHA and Fannie Mae HomeReady both allow for the use of boarder income, but probably about 95% of people can't document the history necessary -- either the rent is paid in cash, it's mixed in with a bunch of other interpersonal financial stuff, or it's just a story with no paperwork to back it up. Just like contractors disproportionately use 203k loans, this provision is disproportionately used by bookkeepers and accountants who make damn sure that their girlfriend's or brosef's rent is thoroughly documented. 

Unlike a full unit you intend to rent, use of boarder income requires proof of current/historic boarder rent collection and (in the case of FHA iirc) even paying taxes on the income.

@Christopher Arter Using 75% of rental income is a standard defined by Fannie Mae and Freddie Mac. These organizations set the guidelines for Conventional mortgages on a national level. Individual lenders are allowed to have overlays on top of those guidelines which make their own guidelines more stringent than Fannie Mae or Freddie Mac require but that is of their own choosing. That is why you see the variation in this policy from lender to lender. As was mentioned above, you need to find a lender who will lend per the Fannie guideline.

Lenders will not count 100% of the rental income because there are expenses involved with renting property. The 75% number is used because lenders know you will need to set aside money to manage those related expenses.

The rental income is on the entire unit only, you cannot use room mate income which we call "boarder," income unless you're applying for the fannie mae home ready primary residence mortgage program or various other niche programs. In general, most programs will not allow use of boarder income.

Regarding after 12 months can you apply for FHA, it depends if you're living else where then buying with FHA or if you're vacating your current primary home and then plan to rent it out to offset your house payment so you can qualify for your new home, the former is the best way to avoid departing residence rules from FHA, and the later is how you subject your self to the FHA 100 mile rule which basically means you cannot use rental income to qualify for a new home with FHA unless you're relocating or living in BFE (applies to people who need that rental income offset to qualify).

The departing residence rules are a set of guidelines that require you to meet certain criteria prior to being able to offset your vacating primary residence with rental income for the purposes of qualifying for another home when using FHA financing. So if you rent your house out and move in with a room mate/apartment/move out for 6-12 months and "THEN," apply for FHA you're no longer considered a borrower who is departing your primary residence any longer. So what does this mean? It means you can use rental income to offset your previous home "and," you get to qualify for FHA financing while not having to meet the departing residence rules....Boom.

so in essence that is a work around. Does it take time to plan this? sure so plan your home loan accordingly with someone who knows the rules because doing so could jump start your real estate investing journey.

It does not take "2 years of rental income," on your tax returns to use that income in all instances only what you've heard. Many sources are available to use use gross rent x 75% - PITIA even if you don't have an actual tenant(S) but the projected rental calculation is important to note that it works only for purchases.  On refinances you need actual tenants to use rental income and or tax returns.

Your wait is generally about 12 months but could be sooner in extenuating circumstance that merit it. Go with the rule of thumb if you don't want to push the edge but if you have a relocation letter, change orders from your CO, need to urgently move to take care of your mother I'm sure a primary residence scenario could be less than 12 months as well. 

It's important to differentiate from grey areas and rule of thumbs. Not everything in lending is cut and dry as much as it may seem so.

 Since you already have a property you wont be able to use the conventional home possible program which allows down payment as low as 5% for 2-4 unit primary residences.

You'll most likely have to use FHA 3.5% down payment financing which means you'll have specific rules you'll have to follow:

- you'll need a fourplex where the gross rents assuming all 4 units added up to equal about .90% of the sales price, meaning a 400,000 sales price fourplex generates about $3,600 per month in gross rents (4 units X 900 per unit) in order for the fourplex to meet FHA's self sufficiency rules (general rule of thumb)

- you'll need 3 months reserves for the entire monthly payment (in addition to 3.5% down payment + closing costs)

- you may want to "move out," of your current primary and rent first rather than moving from your current primary to buy this new fourplex since the "scenario," may not be too plausible to a loan underwriter if your going from a single family home to move into a fourplex. The other issue you can avoid by renting first is you dont have to adhere to the rules regarding "vacating a primary residence." Mid 2016 FHA instituted rules around vacating a primary residence which made it harder to use FHA financing when a borrower was vacating a primary ( Leaving a current home that was a primary) to purchase using a new FHA loan. This rule made it difficult because the borrower is not allowed to use rental income to offset his/her current mortgage (the property you're leaving) to qualify for a new home with FHA financing by placing a min 100 mile restriction on the new FHA financed property. Keep note that this only applies when you're trying to use rental income to offset your current loan, if you're not, and you can qualify for both homes with your other income then this 100 mile requirement is a moot point. The benefit of moving out first is that you're no longer considered under the "vacating a primary," definition because you're now "renting," and can use rental income offset and purchase a new property with FHA with out 100 mile restrictions.

This new guideline reduces chances for borrowers to use FHA to acquire more quasi primary/investment properties since the original intent for FHA was home ownership not investment property promotion.