All Forum Posts by: Julee Felsman

@Kahner Delchambre Hi there!

If one of the borrowers will be occupying the property, then yes, you can qualify under owner-occupied loan terms. 

That said you will still need to make down payment of (likely) 15%. 

FHA allows as little as 3.5% down, however, if the property is a multi-family or there is a non-occupying co-borrower who is not a family member, the down payment requirement is 25%.

So a conventional loan with 15% down is probably your best bet. 

(But that beats 25% down, which would be the minimum down payment if your partner was not planning to occupy the property -- and the rates/fees will be lower as an owner-occupied purchase too.)

@William Sing Thanks for tagging me in. (If I were a fan of pro wresting, I feel like there's a joke to be made here.)

@Nathaniel Ziomek the table below is from a presentation I gave recently. It'll give you a high-level overview of how the various renovation loans compare. 

Conventional = Fannie Mae HomeStyle. HomeReady is FannieMae program that can be combined with HomeReady and offers certain benefits for owner-occupied buyers who's qualifying income is equal to or less than 80% of Area Median Income (LOOK-UP TOOL HERE). 

FHA = 203k. 

They both allow you to wrap construction costs into the loan, but your only option will be a Fannie Mae HomeStyle (non-HomeReady) renovation loan on a single-family residence. 

HomeReady, FHA and VA are for owner-occupants only. The HomeStyle program permits the purchase of rental or second home, but only single-family properties.

Fun fact: a single-family home with an ADU is still considered single-family and HomeStyle can be used to build an ADU.

Hope that helps, but let me know if you have any other questions! 

You're more than welcome. :)

Hi @Jillyan MacMorris! You can use FHA to purchase your next property. FHA is not a first-time buyer program (that's a common misperception). Assuming you qualify, FHA guidelines allow as little as 3.5% down (and there are down payment assistance programs that will allow you to borrow the 3.5%, getting you to zero down).

You could also use another 5% down conventional loan to buy your next place. 

You didn't miss your chance!

I can second @William Sing 's recommendation. Bob and RSW know their stuff when it comes to the 203k program. (And thank you for the nice words, too, Will!) :)

Sure thing! :)

@Gemma Sanchez I can recommend Rental Housing Alliance: https://rhaoregon.org/

Lots of great education around landlord/tenant laws.

@Tina Liao , @Ned Carey is spot on. You can't make a debt "go away" just because it is not reporting to the credit bureaus. And lenders run a lot of background checks that tend to turn up any real estate with which a borrower is affiliated, so efforts to hide debt are usually futile and, as Ned said, loan fraud.

There is a little color I would like to add, however. Debt that is in the name of a business entity (partnership/S Corp) and secured to a property owned by that entity is not included in a borrower's back DTI.

That is not to say it doesn't matter, but the debt is included in the analysis of the business. If the business is profitable, the net income is added to the borrower's qualifying income. If the business shows a loss, the loss is deducted from the borrower's qualifying income. 

The effect of netting a loss from income, rather than including it as an expense in the borrower's DTI is significant. The same concept applies to alimony/spousal support payments, which some loan options will be allowed to be netted from income.

To illustrate, imagine we have a borrower making $5000 salary who has a $1000 alimony payment (or losses $1000 in a rental partnership, if you prefer). Our person also pays $300/mo of other bills and has applied for a loan that allows a 45% DTI. For the sake of simplicity we'll assume an owner-occupied purchase.

Putting our loss/alimony in the DTI looks like this:

$5000 income x 45% DTI = $2250 total debt allowed - $1300 alimony/other payments = $950 maximum PITI

Now let's net our loss/alimony from income:

$5000 income - $1000 alimony/loss = $4000 net income x 45% DTI = $1800 total debt allowed - $300 other debt = $1500 maximum PITI

That extra $550 of payment equates to about $110-115k in additional loan amount. Pretty meaningful. 

So your family member may benefit DTI-wise.

[And real estate owned by a business entity, with a loan in the name of the business entity is disregarded as one of the maximum 10 financed properties allowed under conventional conforming (Fannie/Freddie) guidelines too.]

@George Paquette There aren't a ton of options for 75% to 80% ltv, but they're out there, as some of the other posters mention. .

Lenders think in terms of "risk layering". Cash out, multifamily and non-owner-occupied loans all carry higher risk of default, so you'll need to have a strong profile (credit, income, some reserves) and otherwise and pay a premium in rate. 

But if you fit the guidelines it can be done!

Hi all! 

Wanted to weigh in with some clarification on the FHA guideline. The minimum down payment on an FHA loan for the purchase of a 2-4 unit property is 25%.

THIS LINK will take you to the current HUD handbook 4000.1 with all the guidelines for FHA loans. It's huge... scroll to page 188 of the PDF and look for section B. Paragraph 1 defines a "non-occupying borrower":

A Non-Occupying Borrower Transaction refers to a transaction involving two or
more Borrowers in which one or more of the Borrower(s) will not occupy the
Property as their Principal Residence.

Paragraph 2 states that all transactions with a non-occupying borrower are subject to a maximum of a 75% LTV (25% down). But there is an exception that allows 3.5% down so long as your cosigner is a family member and: 1) the cosigning family member is not also the seller and 2) if the property is not 2-4 units.

For Non-Occupying Borrower Transactions, the maximum LTV is 75 percent.
The LTV can be increased to a maximum of 96.5 percent if the Borrowers are
Family Members, provided the transaction does not involve:
• a Family Member selling to a Family Member who will be a nonoccupying co-Borrower; or
• a transaction on a two- to four-unit Property.

It's written in a bit of a contorted way, but hopefully that makes sense.

Fannie and Freddie both allow 15% down with a cosigner, so that's a lower LTV option. And there are other options outside of the Fannie/Freddie/FHA box. For instance I know of a portfolio program that allows a non-occupying cosigner on a duplex with 10% down offered in a limited footprint of states.