What’s that, you say?? If you want to buy a home and you want to have someone else pay all or part of your mortgage, this may be the strategy you’re looking for.
House hacking is when you buy a duplex or multi-family home, live in one of the units and rent the others out.
This is a great idea if you are handy and willing to put some sweat equity into a house as well because you can fix up one side and then the move and do the other. Refinance, or simply live there and if you now have an updated rental, you may be able to raise rent and attract a long term tenant.
I especially like this for people that have low down payments – because you are living in the multi-family (up to 4 units) you can qualify for an FHA 3.5% down loan at a higher rate and the lender will take your rent into account as part of your income.
Loan limits on a single family home are $331,760 in MN, and up to $736,450 for a fourplex.
Check out the Bigger Pockets podcast for more real estate investment info. 🙂
I think this is one of the greatest misconceptions that people hold about buying a home – you do not need 20% down to buy a home!
I did a video on my channel that talks about why an FHA loan may be a great choice if you don’t have 20% to put down. The federal government has long encouraged home ownership and this is one of the ways that they help people get into homes of their own.
If you’re thinking about buying a home and you want to learn about the process you can download my free home buyers guide, it’s a link in the description below the video.
If you are in Minnesota and you’re interested in downpayment assistance contact me and I can help you find resources on that. Minnesota offers up to $15,000 in down payment assistance so it’s a great resource if you’re looking to get into a house and you don’t have that large down payment.
Here is why the FHA down payment requirement might make this the right loan for you if you don’t have a large amount of money to put down on a new home…
What is an FHA loan? Well, an FHA loan is simply a loan that is insured by the federal government and it enables people without a lot of money or with less than stellar credit to get into a home in a less expensive way and the price that you pay for that, “the catch”, is that you have to get something called PMI. Private Mortgage Insurance.
It’s required on all FHA loans.
You do not have to be a first-time homebuyer in order to get an FHA loan. The requirements of an FHA loan are as follows:
It’s billed as as little as three and a half percent down and, that’s true, but you should plan to have about six percent of the purchase price of the home available because you’ll have that three and a half percent that you’ll put as a down payment and then an additional two and a half three percent that would go toward closing costs.
Now in Minnesota often we get the sellers to pay about three percent in closing costs but they are not obligated to do that. So if you have that money available it just strengthens your ability to purchase that home.
Before you get an FHA loan:
First the lender will need to verify your income and they prefer to see two years employment, hopefully in the same field. They’re going to ask for pay stubs and verification of income.
The mortgage amount that you are able to borrow – the payment on that amount- needs to be less than thirty five percent of your income. And your total debt payments (car loan, credit card, student loan PLUS mortgage) must be less than 48 percent of your income.
In another video I talked about things that you could do to get ready to buy a home and one of those was paying down debt. Another thing you could do is consolidate debt so that you have one payment at a relatively easy interest rate and just make sure that you’re always, always on time with your payment.
Check out the home affordability calculator linked in the video. It’s going to tell you if you can qualify for an FHA loan based on what your payment’s are today. One of the other qualifications that they like to see is two lines of credit so if you have a student loan perhaps and a credit card or a car payment they’ll look at those two lines of credit and check out your payment history and make sure that you are a qualified risk.
Then there is your FICO score. Your FICO score is the credit score that lenders use to determine whether or not you’re credit worthy and you can get a hold of that in your annual free credit report where you can look out there and see what things are maybe pulling your credit score down, what things you could pay off, maybe things that you have paid and need to dispute. That is free – you can get it every year.
One of the last qualifications is how much you can borrow. In 2020 they have changed the amounts that you can borrow. In the Minneapolis metro area you can borrow, this is the actual loan amount, up to $382,950 on a single-family home.That’s a that’s a pretty large amount to take out as a mortgage and you’ll have a lot of options especially if you were to be in the northern part of the city or the suburbs that could buy you a lot.
Then there’s the even a better option, in my opinion, which is if you wanted to do a “home hack” which is this idea of buying a two family home and moving into one side of it and renting the other. You can borrow up to $490,250 and then they would account for that rent on the other side as part of your income and you can, depending on your situation if you get into the right one, be paying most or all of your mortgage through the rent on the other side of your house. It’s a good way to get your foot in the door and build some wealth!
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