All Forum Posts by: Zack Karp

@Tim Monistere welcome to BP! Chances are, based on what you said, the loan officer you are working with doesn't know what they are doing when it comes to VA loans on 2-4 unit properties. Or how to help you maximize your lending power. Run...

Also your credit score did not drop 30 points from 2 inquiries, it had to be from something else, like your revolving balances changing.  If a mortgage lender pulls your credit, any other inquiries that are coded the same way do not affect your credit score for 30 days.

If you are potentially buying more than one 2-4 unit property (house hacking), there is a strategy to the order in which to use your VA benefit, FHA, and Conventional financing. This is next-level strategy that you will not find working with bank LO's or call center LO's with the big online lenders. Be sure to use someone who specializes in working with investors and VA lending, it will be a huge difference to your success.

TYFYS and best of luck!

@Gregory J Galica Sr kind of what both Mike and Mike said. It really depends what type of loan you will be obtaining. The guidelines are different for Conventional, FHA, VA, commercial, or portfolio/non-QM loans.

If you are getting a new W2 job, and you only need base income to qualify, then there's no seasoning, you can qualify with the new income right away.  If you are trying to use commission right away, then it's trickier because the pays from your old job and new job need to be similar.  I.E. are you paid by the mile, by the weight, is it long distance or a local daily route, etc.  And then you will need to establish some kind of track record of receipt to establish stability of the new income.  This part can vary by lender...banks and more strict lenders might require 1-2 years of receipt at the new job, while some lenders who underwrite directly to the agency guidelines (like us) only might need to see 1-2 paychecks to show that stability.

If your new job will be 1099, then that's a whole other story, you will become self-employed and will need to file 2 years tax returns before you can qualify, and your qualifying income will be your net taxable income (after deductions).  Unlike when you are W2 and can use your gross income to qualify.

Hope that helps.  As Mike said, feel free to reach out to one of us for guidance or your specific scenario.

Best of luck!

@John Bradley yes I do 3-4 units Conventional at 80% LTV all the time. Fannie Mae is 75% LTV max, but Freddie Mac is 80% LTV. That's a bad LO situation if they made you do it at 25% down. Or unless Freddie wasn't giving you an approval, which is extremely unlikely.

@Henry Lazerow great write up.  The only thing you should amend is with the closing cost credits. It does not add closing costs into the mortgage amount. The seller credit reduces the out of pocket amount by paying the closing costs.

Conventional - investment property = 2% max

Conventional - primary residence - over 90% LTV = 3% max

Conventional - primary residence - 75.01% - 90% LTV = 6% max

Conventional - primary residence - 75% LTV or less = 9% max

FHA = 6% max

These credits are also capped at the actual amount of closing costs and prepaids. So for FHA, if the purchase price is $400K, you cannot get a $24K seller credit unless the closing costs and prepaids equal $24K. Which is very unlikely unless adding points to buy down an interest rate.

Hope that helps!

@Moti Bariso he's mostly spot on.

Freddie Mac used to allow a 5% down on 2-4 units using Home Possible, that was nerfed in April.  You likely would not have qualified for that anyway, as that program has an income cap.  If you can afford to carry 3 properties, chances are very likely that your income exceeds that cap.

FHA is a necessary evil for a low down payment. And yes, there is a self-sufficiency test (SST) for 3-4 unit properties where 75% of the rents of all of the units (including the owner's unit) must exceed the PITI. Sounds like either he doesn't understand how this works, or you misunderstood him.

The UFMIP cost is 1.75% of the loan amount. That's the trade off for a low down payment. And correct the monthly MIP never goes away unless you refi out of FHA. You have to just include that in your numbers and make sure the property works with it. Or find a value-add property that you can force appreciation to refi out of it sooner.

Best of luck!

@Jonathan Klemm thanks for the tag!

@Matthew Kinsella you have a fantastic opportunity with your situation!  Let me know if I can help in any way :)

@Kenneth Gore the worst part is, many LO's don't even truly understand what a VA loan can do! LOL.

There is definitely a method to the madness, and a certain strategy path to follow to maximize your buying power.  Doing things out of order, or with the wrong properties, can set you back or limit you.

If you need any help with laying out your strategy, or want to chat sometime and map it out, feel free to DM me and we can connect.

Best of luck!

@Kenneth Gore in theory, yes it is possible using the BRRRR strategy. In reality and practicality, today, not so much. Here's how it needs to happen:

For non-Veterans, FHA is the only low down payment loan for 2-4 units, allowing 3.5% down. (Home Possible used to allow 5% down, but that was nerfed, it's now 15% down.) Veterans can also get another 1-2 properties using a VA loan, because they can buy a 2-4 unit with $0 down, and then potentially a second 2-4 unit with $0 down (or little down) using bonus entitlement. HUGE advantage.

You can only have 1 FHA loan at a time (unless you relocate 100 miles away).

So in order to re-use FHA each year, you have to refinance the loan out of FHA into Conventional (or another product with worse terms). For a Conventional refi of an investment 2-4 unit, the max LTV is 75%. You would need to do the refi as an investment property in order to buy a new property as a primary FHA right away.

So somehow, you need to create 21.5% equity in that property in that 1st year, in order to to the Repeat step of the BRRRR method.

If you are buying $60K properties in Bufoo Nebraska, it might be pretty easy to get that property value up to $80K.

If you are buying a $300K property, you need to get the value up to $400K-ish in order to utilize the Refi step of the BRRRR method. Totally different scenario, now we're talking rehab and value-add situations.

But if you can create that much equity in that short a time, you can refi that FHA loan to a Conventional investment property loan, and free up your FHA eligibility to buy the next property with 3.5% down again.

So it very much depends on things like the location and condition of the property, but it's absolutely POSSIBLE.  It was also much easier to do this 5-10 years ago before this real estate market exploded.

Hope that helps!

@Nicolas Bajner welcome to BP!  If you are trying to stay within 37 mins of AH, for 2-4 unit properties, Elgin or Carpentersville will be your best bet.  You might find a needle in a haystack elsewhere, but Elgin especially will give you the most at bats.  Lots of very successful investors started by house hacking in Elgin.  You're on the right track.

Let me know if can help in any way, I live near that area in Gilberts and have a lot of connections in the area with realtors and other investors.  And I do mortgages if you need any help there or have any strategy questions.

Best of luck!

@Michael B. the short answer is yes, you can buy a primary residence separately from your spouse.  There is no law that says that spouses must live together.  Especially due to work travel.

However, Conventional financing does not allow 5% down for a 2-unit.  You would need 15% down for a 2-unit, or 20% down for a 3-4 unit.  There is a Conventional program called Home Possible that used to allow 5% down for a 2-4 unit, but that was nerfed earlier this year.

But you're in luck. If you are relocating more than 100 miles away from your current home (which it sounds like you are), then you can buy another property with FHA and only need to put 3.5% down. That's one of the only ways to have a second FHA loan at a time, without having to refi the existing FHA loan.

If you need any help navigating this, feel free to reach out.  You may find resistance on this strategy if you are not working with the right LO/lender on this.

Best of luck!