Buying a 2-4 Unit Home using an FHA Mortgage
If you are considering buying a duplex, triplex or fourplex and you’re going to live in one of the units, FHA is a possible mortgage option.
FHA allows for a low down payment of 3.5% (soon to be 5% for FHA jumbos) and is more flexible with credit scores than conventional financing. Just like 1-unit FHA financing, gift funds are allowed towards down payment and closing cost. Sellers can contribute towards bona fide closing cost and not the down payment.
Home buyers should plan on having at least three months reserves (proposed total mortgage payments) in savings for reserves. The reserves can be retirement funds or stocks and bonds.
Buyers may also receive a credit of the monthly rental income to help with qualifying. NOTE: the amount of rent credit will depend on what the current vacancy factor is for the area. Borrowers can plan roughly 75%. In the Seattle area, 85% of the rental income may be used.
Here are the 2013 loan limits for 2-4 units in the Seattle – King County area:
Mortgage rates for FHA 2-4 unit properties are competitive with single family FHA as is FHA’s upfront and annual mortgage insurance (paid in the monthly mortgage payment).
As of this morning, for a 3-4 unit property with a sales price of $600,000 and 5% down payment, I’m quoting:
FHA 30 year fixed: 3.250% (apr 4.081) Most of the closing cost and some of the prepaids are covered with current pricing offering a rebate rate credit of 0.780%.
PIMI payment = $3088.89 (PIMI = principal, interest and mortgage insurance. Property taxes and home owners insurance are additional). Remember, the home buyer will need three months of their proposed mortgage payment in reserves, which is $9,267 for this scenario.
This is a great way to buy your first investment property – as long as you live in it for 12 months after closing.
If you are considering buying or refinancing a home located anywhere in Washington state, please contact me.