I recently closed a "sweetheart" transaction in Berkeley for first-time homebuyer.Â This buyer found a 4 unit property in Berkeley for $585,000.Â She was looking to buy this home with an FHA home loan with a 3.5% down payment.Â After her real estate agent got involved, the price was then slashed to $573k, and a credit toward closing costs of $10k was added.
HUD stipulates that 3-4 unit properties completely "debt-service" the property.Â This means that the market rents (or actual rents, whichever lower) must at least equal the entire mortgage payment due on the property.Â This number includes principal, interest, insurance, taxes, and mortgage insurance.Â
This has been quite a tall order with most of the inquiries that I've been getting for multi-family, FHA transactions over the past few years.Â As the loan amount climbs, so does the full payment.Â It's very enticing to see that we can borrow over $1MM for 4 unit properties here in San Francisco County, but with rent-controlled units, it's been very difficult to "debt-service" the property. Moreover, the FHA applies a vacancy factor to the market rents.Â In our county, we can only use 85% of the market rents to qualify an FHA loan.
But this one worked!Â The market rents on this property ($4,800 total, including the subject unit) eclipsed the actual payment of about $4,000 (with a 4.25% 30 year fixed loan).Â This means that my borrower's portion of her mortgage (assuming the other 3 are rented) will only be $400!
It's something to think about.Â
Click hereÂ to read the SF Chronicle article about this deal.