I WANT TO RETAIN A MORTGAGE BROKER and/or AGENT to help with a Tricky situation (I have no representation at all right now).

Asked by Mike, 08518 Tue May 8, 2012

If I buy a 4-unit property with FHA, live in it for more than a year, but then want to buy a "forever home" and keep the 4-unit, will I be able to get a conventional with 5-10% down, or will it be treated as an investment property, despite being intended as my primary residence? And, how will the 4-unit factor into my D/I ratio when buying the "forever home"? Will lender consider the 4-unit's PITI (2000) as debt and its revenue (3000 from 3 rented units) as income, or will lender simply look at its 1000 profit as income? Assume more than 1 year of documented rent on IRS schedule E. I'm concerned about trapping myself in the 4-unit.

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14
Trevor Curran, Mortgage Broker Or Lender, Great Neck, NY
Fri May 11, 2012
I'm sorry, when someone starts out with the words, "Tricky situation" and is searching for a specific kind of mortgage broker to help out with that "Tricky situation" AND the person admits to not only KNOWING the FHA Guidelines, but also has a plan to move out in the VERY NEAR FUTURE, to my 22-Year-Mortgage-Eye that looks, smells, walks, and talks like FRAUD.

This is a person looking to game the system and is searching for an accomplice to do so.

Trevor Curran
NMLS #40140
1 vote
Just for the record, I never said I intended to move out of the property after a year -- I just acknowledged that I know I'm not even aloud to do so for at least a year. My intent would be to stay with the 4-unit place indefinitely. My only concern was getting trapped in it and not being able to buy a new home -- IF -- my situation should change in the future. I just wanted to make sure that IF, say, I was to get married and have children a few years from now, necessitating a larger home, and IF I couldn't sell the 4-unit, I wouldn't be completely incapable of financing another home because of my D/I ratio. I'm simply trying to think ahead and consider all hypotheticals -- that's it.
Flag Mon May 14, 2012
Susan A Steb…, Agent, Hamilton Square, NJ
Mon May 14, 2012
Mike, I think you've gotten enough advise. What you need are answers to direct questions about your financial situation and hypothetical plans for the future. By the way, no one has a crystal ball and all this advise could be a waste if FHA regulations or mortgage programs change. We don't know whats going to happen for sure next month let alone what may happen a year + from now. The market is starting to improve and your option to buy that 4 unit may not last forever.
0 votes
Mike, Home Buyer, 08518
Mon May 14, 2012
Just for the record, I never said I intended to move out of the property after a year -- I just acknowledged that I know I'm not even aloud to do so for at least a year. My intent would be to stay with the 4-unit place indefinitely. My only concern was getting trapped in it and not being able to buy a new home -- IF -- my situation should change in the future. I just wanted to make sure that IF, say, I was to get married and have children a few years from now, necessitating a larger home, and IF I couldn't sell the 4-unit, I wouldn't be completely incapable of financing another home because of my D/I ratio. I'm simply trying to think ahead and consider all hypotheticals -- that's it.
0 votes
Albert Rapop…, Mortgage Broker Or Lender, Cranford, NJ
Fri May 11, 2012
Trevor, that is not correct. There is no requirement (FHA or otherwise) to occupy a property beyond 1 year. In fact, the closing documents which he will sign will reflect that the borrower certifies that he will occupy for 1 year. If this client want to buy a 4 family home, occupy it for 1 year (as he wrote) and then move to another home, I see no rule that he is violating. However, if he were to move out within the 1st year, that could be problematic.
0 votes
Trevor Curran, Mortgage Broker Or Lender, Great Neck, NY
Fri May 11, 2012
What you are proposing is that you will take an FHA Insured mortgage today on a 4Family home, yet you have no intention of living in the home for any length of time because after a short time you plan on vacating that premises to buy another home. There is no "One Year" requirement for FHA. There is an OWNER OCCUPANCY requirement; statistically American Homeowners live in their homes for 7-10 years before either moving or refinancing. Yet you already have your PLAN ready. In other words, you are proposing MORTGAGE FRAUD.

You already have the intention of defrauding the Federal Government and your Mortgage Lender before you even purchase the home. You're using the FHA regulations to fraudulently purchase an investment property.

Trevor Curran
NMLS #40140
0 votes
Susan A Steb…, Agent, Hamilton Square, NJ
Wed May 9, 2012
HI Mike, You can buy a single family dream home once you have lived in your rental property. As you know the next home will need conventional financing and there are loans with only 5% down payment. You will not be credited with all of the income from the rental units but will be charged with all of the debt. You need to speak directly with a reputable loan officer who will look at your specific income /debt ratios and give you credible advise. Give me a call. I work in the Florence area and can give you a referral to loan officers who will be able to answer all your questions.
0 votes
Robert Milia…, Agent, Medford, NJ
Wed May 9, 2012
I wouldn"t advise a Mortgage Broker, Go directly to a Bank. A bank you will have the answers direct not thrid party .
0 votes
Albert Rapop…, Mortgage Broker Or Lender, Cranford, NJ
Tue May 8, 2012
1) you can absolutely buy your 1 family as a primary residece and go 5% down conventional 1 year from now. No one in their right mind would call it an investment.
2) the DTI question is a bit more involved. Call me at 201-604-3485 and I'll go over in detail.

Al Rapoport
0 votes
Mike, Home Buyer, 08518
Tue May 8, 2012
Maybe my question wasn't clear. Sorry. I am not asking about qualifying for the 4-unit (it is self-sufficient, occupied, etc.). I'm very familiar with FHA regs. That's not a problem. I am asking about qualifying for a NEW home after I fulfill the year-long occupancy requirement in the 4-unit, while keeping the 4-unit. I know I will not be able to get another FHA loan because I will still have one on the 4-unit. That's why I asked about whether I could get a conventional at that point with a low down payment. The question is whether I could get a conventional for 5-10% down, or if I would be treated as if buying an investment property, i.e., 20-25% down -- even though it would be my primary residence. The second question was how the monthly mortgage payment due on the 4-unit, and the revenues derived therefrom, would factor into my D/I ratio when underwriting my loan for the 2nd property? The PITI for the 4-unit place would be about 2000, and the revenue from the three remaining units would total 3000, leaving approx. 1000 profit. Three of the four units are occupied. I would occupy the fourth, which would be rented for approx 800 after I purchased the second property. Would the underwriter consider the 2000 of PITI as debt, and the 3000 of revenue as income, or would they simply look at the 1000 profit as income (subject, of course, to a vacancy/maintenance factor).
0 votes
Albert Rapop…, Mortgage Broker Or Lender, Cranford, NJ
Tue May 8, 2012
I have a lot of experience with exactly your situation and am more than happy to discuss it with you. Feel free to give me a call at your convenience at 201-604-3485. We are a direct mortgage banker and I have over 8 years of high volume, full time experience.
0 votes
Camille Mar…, Agent, Millstone, NJ
Tue May 8, 2012
Great question. You can purchase a 4 unit as your primary residence but there is ONE major factor that needs to be addressed. On a 3/4 unit dwelling, the property has to pass a self sufficiency test. It means that the income from the rental units will have to cover the mortgage without the owner occupied unit. So you have to have a good positive income from the rental units to make this happen. If the dwelling is empty this is going to be difficult to calculate. In that situation the gross rental income will be taken off ot the appraisal noted on the report.

You are only allowed 75% of the rental income to qualify for the loan. The building will have to carry itself.

So before you continue to investigate your options you need to ask many more questions to the realtor you are doing business with. It is a great idea but there are consequences if you do not follow through.

I will be happy to help you.

Camille Marotta MNLS 9838
Branch Manager 732-539-9300
First Alliance Home Loan
0 votes
Camille Mar…, Agent, Millstone, NJ
Tue May 8, 2012
Great question. You can purchase a 4 unit as your primary residence but there is ONE major factor that needs to be addressed. On a 3/4 unit dwelling, the property has to pass a self sufficiency test. It means that the income from the rental units will have to cover the mortgage without the owner occupied unit. So you have to have a good positive income from the rental units to make this happen. If the dwelling is empty this is going to be difficult to calculate. In that situation the gross rental income will be taken off ot the appraisal noted on the report.

You are only allowed 75% of the rental income to qualify for the loan. The building will have to carry itself.

So before you continue to investigate your options you need to ask many more questions to the realtor you are doing business with. It is a great idea but there are consequences if you do not follow through.

I will be happy to help you.

Camille Marotta MNLS 9838
Branch Manager 732-539-9300
First Alliance Home Loan
0 votes
Ines De La C…, Agent, Marlton, NJ
Tue May 8, 2012
Hello Mike,
Thank you for your question.
I think you need to talk to a loan officer who will answer your questions.
Call William De La Torre at 856-562-2286 from Wells Fargo Home Mortgage. He can ran the numbers.
I can certainly assist you with both the 4-unit and your "forever home".
Good luck!
Ines De La Cruz
RE/MAX Connection
inesdelacruz@remax.net
0 votes
Suzanne MacD…, Agent, Morristown, NJ
Tue May 8, 2012
An FHA loan is not a conventional mortgage. It only requires 3.5% down payment. And you can purchase anything from a single family to a four family home with an FHA loan. I think your plan is a sound one. I would be happy to refer you to the mortgage person I work with. He's really phenomenal and he will be able to answer all your questions as to debt to incomme ratio and so on. Just email e at smacdowell@kw.com and I will be glad to introduce you. I wish you were looking in North Jersey, I'd be more than happy to help you myself!
0 votes
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