All Forum Posts by: Tanner King

 @Tanner King   I lived in one unit of a duplex and rented the other as my first  property in Dallas 20+ years ago long before it was called house hacking. Best real estate investment of my life for a lot of reasons including just understanding the basics of finance and being a landlord etc. So, great idea.  

As a lender, I would give you a pre-approval letter as long as you had the assets (and meant all other requirements) even if the assets were in a 401k. You might have no intention of actually using those funds as such, but you could. During our conversation I would understand that the plan would be to have enough cash from payroll saved by the time you closed to use for down payment, and that is completely fine. 

But, something to add that you have to understand is that a 3-4 unit has to be meet the FHA self sufficiency test. This requires that 75% of the rent the building brings in covers the entire payment including taxes, insurance and FHA monthly mortgage insurance. With the run up of multi family prices, relatively high rates and the 3.5% low down payment this is virtually impossible (outside of some markets in the upper midwest) to make happen.

Take note that this self sufficiency  test does NOT apply to 2 unit buildings, only 3 or 4 units. AND you can know put as little as 5% down on a conventional loan, which is a better loan anyway if you can manage the extra 1.5% down, does NOT have this test for 2,3 or 4 unit buildings. 

Great to hear about the pursuit of a multi-family property! I picked up on that you were looking at using your 401k as part of the down payment. I can't say don't do that, however, you should consider a few things before raiding the 401k for down payment money, and maybe there are other options. Here are a few considerations with respect to the 401k: 
1) Although you can take funds with no penalty for first time home buyer, you can't return the money to the 401k. 401(k)'s have unique tax advantages that allow for tax-deferred, or in the case of Roth, Tax-Free growth. One day, you might regret taking the funds from the 401k. 

2) You could consider borrowing against the 401k, whereby you can borrow up to 50% not to exceed $50,000. You must make payment back at prime + 1%, and if you miss payments the balance is distributed, which can have severe tax consequences and penalties. That said, likely a better option than #1, and you are paying interest back to yourself. 

Hopefully this helps some as you make your decision and congratulations in advance on your ambition journey to real estate investing. Tons of admiration for folks getting started. As a RE investor myself, the first one is always the most challenging... Keep working hard! 

@Tanner King

To prepare for an FHA loan, ensure income stability and sufficient savings to cover down payment and closing costs. Consider liquid assets like a 401k as part of your down payment. Wait for a stronger financial picture and speak with lenders to get pre-approved for higher loan amounts or favorable interest rates. Focus on building savings, networking with investors, and exploring house-hacking opportunities.

Good luck!

Hi @Tanner King, if you have funds to purchase, even if they are not in your checking account, there is no reason why that should stop you from getting pre-approved if you are willing to use those funds to help you purchase your home. There are a few possible programs out there for first time home-buyers that will assist with your down payment as well. Feel free to reach out to me with any questions.