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In a lending market that requires an investor to put 25 percent down on a four unit property, and an owner occupant just 3.5 percent on the same building, it would seem happy days are here again for live-in landlords.
After all, don’t more units always mean more money?
In this case, yes. And yes.
It seems the FHAdoesn’t want any one of us to have too much fun. So, they’ve imposed something of a curfew on the triplex and fourplex market.
Guess what?
Before they’ll even think about giving you a loan, they want to know the net rental income of the property is greater than or equal to the monthly payment. In addition to the mortgage itself, the monthly payment also includes property taxes and insurance.
And with property taxes being based on the artificially high values of a few years ago, that’s tough to do.
What’s the net income? Well, that’s 75 percent of the rent collected from the three units you don’t intend to live in. In other words, the property has to be able to pay for itself with 75 percent of the revenue collected from just 75 percent of the units. Read the rest of this entry »
said on July 16th, 2009 categorized under: Financing
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It sounds presposterous, but a client actually had a computer glitch significantly delay his purchase of a duplex the other day.
As he was using FHA financing, the glitch involved a software problem in the computer system of the federal government. Basically, he had written an offer earlier in the year on a different property, which we were unable to successfully close on. And somehow, the “case number” assigned to the loan he never got remained in the system.
When he went to get a loan for a different property, the government’s software prevented it. After all, you can only have one FHA loan at a time. And the computer said he was applying for a second one. The computer is always right (sarcasm intended).
So I went about looking for alternatives. After all, there are no limits to the number of conventional loans a buyer can have at one time. And I hoped there was a loan product out there with perhaps a down payment of just a little more than FHA’s mandatory 3.5 percent. Perhaps we could find him a conventional loan that required just 5 percent down.
And then I learned something.
While conventional loans on single family homes presently require the buyer to have a minimum of 10 percent down, duplexes are another matter entirely.
We all know investors are required to put 20 – 25 percent down in today’s market. So it should be something less if you’re buying the duplex to live in, right?
Nope. Owner occupants who use conventional financing for their multi-family properties are required to have a 20 percent down payment.
Sadly for my client, it looks like FHA is still the best game in town.
