Ailan, Home Buyer in 55104

Can the FHA Loan (have pre-approved letter up to 200k Loan) buy the 3-unit or 4-Unit home (the one sale price from 200K and less, ofcourse) ?

Asked by Ailan, 55104 Sun Apr 14, 2013

Dear every one expert in FHA Loan,
I am live in Minnesota
I got the 200k pre-aproved letter FHA Loan, rate 3.75%. I have searched for Triplex and 4-Plex home price 180k or lower, I would like to purchase, but my Loan Staff said that I only buy 2-unit home so I have to rid off. When I read your articles on internet, it says that FHA loan can purchase 3-unit and 4-unit, not only 2-unit. So what is correct? Can I purchase 3-unit or 4-Unit? Look forward to hearing from all of you. I am really confused. Thanks for your sharing.

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22
Sherri Sherpy, , Saint Paul, MN
Sun Apr 14, 2013
Hi Ailan,

Yes, you can purchase a 3-4 unit dwelling using FHA financing. However, there are a few additional requirements. You will need to be able to document 3 months of reserves in liquid assets. In other words after the cash needed to close, you will need 3 months of principal, interest, taxes and insurance left over. In addition, you are not allowed to use gift funds in a 3-4 unit purchase.

As a side note, I am curious on that interest rate. Are your credit scores below 640? If so, I can understand the 3.75%. If they are above, that rate is very, very high for an FHA loan.

Best wishes to you,

Sherri Sherpy
The MN Mortgage Mom
612-363-1106
sherri@iloanhomemortgage.com
Web Reference:  http://www.sherrisherpy.com
4 votes
Can you please explain (give me an example about 180k loan for 3-unit home please, tax 3k and insurance appr. 150$/month) to illustrate the point "there are a few additional requirements. You will need to be able to document 3 months of reserves in liquid assets. In other words after the cash needed to close, you will need 3 months of principal, interest, taxes and insurance left over. In addition, you are not allowed to use gift funds in a 3-4 unit purchase' ? I am sorry I do not understand what is 3 months of reserves in liquid assets, what is amount of 3 months of principal, interest, taxes and insurance ? Thank you.
Flag Sun Apr 14, 2013
Hello Sherri Sherpy,
My credit score is 670. I am the first-home-purchase so I admit that many things I've got mistake. The first thing is, I did not shop around to get the good rate from good lender. This rate comes from Quicken Loan. 3.75% rate for 30 year plus 1.35% mortgage insurance, it is so high.
Second, the Quicken Loan staff (I get she is broker) she bill me about 1,6% commission for the loan, she talked to me it is fixed amount, It can't be negociate. She is the one contacted to me and provide me the pre-approved letter for FHA loan. I do not know exactly who she is, broker or somone. But over 2 past months, she advice me that I can only buy single family or 2-unit home, I can not buy 3-unit or 4-unit. I've believed in her, so I rid off many good deal 3-unit/4-unit recently.
And my realtor, she seems abandon me, not give me any advices except giving me some home listing she has. Even my rate 3.75%, she keep silence, not recommend me any other way to save my money.
Flag Sun Apr 14, 2013
Sherri Sherpy, , Saint Paul, MN
Tue Apr 16, 2013
Hi Ailan,

Well, I have thrown Ramsey County into a bit of a tizzy over the question if a duplex is an eligible property or not. In their guidelines and procedures, it specifically states "A multi-unit, owner occupied property is not an eligible property." As a lender, I have abided by these rules for years. However, when looking at the consumer flyer on their website, it shows a duplex as an eligilble property. I called Ramsey County and they are quite surprised by the conflicting information. She told me that she does believe duplexes are eligible, but is going to confirm that information.

Kind of crazy, huh? :)

Nevertheless, however you decide to proceed I wish you many blessings. :)
1 vote
Sherri Sherpy, , Saint Paul, MN
Mon Apr 15, 2013
I can only speak to what I know is a fact and that is that none of the down payment assistance programs that I mentioned previously will allow for 3-4 unit homes. Yes, the duplex is an eligible property with MN Housing and Dakota County. But I will guarantee that 3-4 unit properties are not eligible with any of the programs previously mentioned.

I don't know why your loan officer is telling you they are. That is flat out wrong information.

Ramsey County and Minneapolis Advantage do not allow for any multi-unit properties. Meaning, they only allow single family homes such as a single family residence, townhome or condominium.

Ailan, I would just hate to see you apply for Ramsey County assistance only to find out a week before closing that the entire loan falls through because someone is telling you that the duplex is okay. It is not. You could explore the MN Housing program with a duplex, but not Ramsey County.

Be cautious, my friend! And make sure that you are getting credible information.

Sherri Sherpy
The MN Mortgage Mom
612-363-1106
sherri@iloanhomemortgage.com
1 vote
Donald James, Agent, Edina, MN
Mon Apr 15, 2013
Hi Ailen,
Refer to my answer below about building a team. We offer free investor workshops where you learn some of the basics of investing including ROI spreadsheets, contracts, leases, etc. as well as basic property management. It sounds like you moved forward without enough education or professional guidance. The term investor means you own an investment. The trick is in having a PROFITABLE investment. Call if you have questions.
1 vote
Dean Gupta C…, Agent, Minneapolis, MN
Sun Apr 14, 2013
Yes there few things can be in your favor. First live in the building yourself--so it is owner occupied. 2) then if you can show the Rental leases from 2 or three unit, then 60-70% of that income can be used towards your income and your qualifying could go up. But main thing here could be your credit scores. You may also qualify for city programs, down payment help too. There are 100's of programs are there and some fine prints are there. These rules and conditions keep changing virtually every month. So you have to work with a lender that you can trust. I can recommend you but you will have to call me. I probably can not give contact info in these write ups. Good luck.
1 vote
Christopher…, Agent, Bloomington, MN
Tue Apr 16, 2013
I agree Ailan if you qualify for DP assistance there is nothing wrong with applying. The state of Minnesota has their program that most buyers end up using, but as for counties and cities there are programs popping up all the time (they run essentially until the fund is out).

It is just like I said for a realtor. Our job is to not make the decisions FOR YOU! It is my responsibility, and the loan officer, to lay out all the possible options for you and explain them. Educate and empower YOU so that YOU can make the decision.

That is what I just believe. Empower the consumer to make educated decisions in the buying process.

Yes you can switch lenders at any time and yes you can switch realtors at any time. They lender may not like it (but there is really nothing they can do), and the realtor/broker may say you have a contract. Bottom line if he/she broke their fiduciary responsibilities to you that is grounds enough for me to cancel the contract.

And many times it simply comes down to customer service. Start over Ailan with a new loan officer and realtor so this gets done right. Gimme a call or email and I would love to show you how I am making my investor clients money. It is really not that hard when you get down to it I promise.

~Chris
651-307-7663
chris.block@imetroproperty.com
0 votes
Ailan, Home Buyer, 55104
Mon Apr 15, 2013
Hi Sherri

The loan officer didn't tell me anything. This gentlemen is working for the down payment assistance program told me that. He has nothing to do with the loan. When asked if the house was qualified, he asked me that if the house was in St Paul. We said yes. He then said the house qualifies.

Btw, we now give up on the T-plex and F-plex. because of the possible headaches and stresses.
0 votes
Hi Ailan,
Well, I have thrown Ramsey County into a bit of a tizzy over the question if a duplex is an eligible property or not. In their guidelines and procedures, it specifically states "A multi-unit, owner occupied property is not an eligible property." As a lender, I have abided by these rules for years. However, when looking at the consumer flyer on their website, it shows a duplex as an eligilble property. I called Ramsey County and they are quite surprised by the conflicting information. She told me that she does believe duplexes are eligible, but is going to confirm that information.
Kind of crazy, huh? :)
Nevertheless, however you decide to proceed I wish you many blessings. :)
Flag Tue Apr 16, 2013
Ailan, Home Buyer, 55104
Mon Apr 15, 2013
I also have this question. I want to change lender with lower interest rates. Can I do that? Basically I signed all of the documents but my realtor told me that they're only effective when the loan is closed.
0 votes
Ailan, Home Buyer, 55104
Mon Apr 15, 2013
@Sherri: The house that we intend to buy is in St Paul. It's a duplex. When I submitted all required documents today I asked if the house qualifies, he said yes. He also said up to 4 units qualifies. So what exactly does "Ramsey County: A multi-unit, owner-occupied property is not an eligible property" mean? I'm sorry if I don't understand you correctly.

@Chris: Thanks for your analysis and explanation. About the Down Payment Assistance Program I totally had no idea that there was such one until my realtor told me about three days ago. She also told me that this was a NEW program from the government assisting up to $15K for first time home buyers. So if it is true, why don't I apply? Who wouldn't want it? I just would like to know what my realtor told me is correct?
0 votes
Christopher…, Agent, Bloomington, MN
Mon Apr 15, 2013
Wow talk about some great discussions going on here. After reading through most of the responses it just sounds like if you are shooting for Down payment assistance you may not have the cash in reserves to qualify for the underwriting. Simple enough.

Pretty clear to me that you got some bad service on the lending side so hopefully you will take the steps to switch lenders now. It will save you from further headaches. The truth is the internet can be confusing when trying to find questions. Best to have a lender walk you through everything and explain it to you.

As for the real estate side I think it is pretty clear that needs some serious consideration. Not all realtors understand investment properties or even how to analyze them. There are some basic fundamentals that should already be covered with you.

Just my two cents, but I don't even really like triplexes or a 4-plex for your budget. Usually the numbers don't pan out really that much better compared to a duplex. Of course it always depends.

I just think duplex's still provide dual to the investor in that you have rental income (cash flow) and appreciation from it being residential. You can even count rental income towards pre-approval for owner occupant if it is a pre-existing established tenant.

As you have already found out gets a little harder for a 3-plex or 4-plex, and quite frankly I just don't think as many people go owner occupant on these. Still happens obviously because you are talking about it, but I think overall just a little harder sale.

So maybe I will put it to you this way. For a duplex I would be happy to cash flow positive $500/month when it is all said and done. I like a duplex because I think it is an easier sale and there is appreciation on top of rental income that I like quite a lot. That is not just PITII by the way but property management, any utilities, and maybe the most MESSED up variable MAINTENANCE! Man do people underestimate those. You get the gist NOI (net operating income) is the money left over after everything.

After that I need $250 for every additional unit. $750 for a triplex and $1,000/month for a 4-plex. Personally I would want more than that but for now I will keep it simple.

In other words, the more units the more cash flow becomes very important to me. That is because the potential problems, evictions, just plain headaches multiplies and I am not so sure I want to deal with it. The appreciation potential (in my opinion) is not as solid as a duplex.

I probably just confused the heck out of you so sorry about that, but this should have been one of those first conversations you had with the realtor. It gives you an example of how I roll. I closed on a duplex in St. Paul about a month ago for 105k just about where both units rented close to $1100 with section 8 tenants. The cash flow is there, and your DTI would not get maxed out so quick by going low like this so you can actually go buy another duplex if you want later.

Owner occupant sure is a lot nicer than 25% down for non-owner! Especially that whole cash-on-cash return thing.

At the end of the day what a good realtor should do is talk to you about all the options available, and then try to get a clear understanding of your goals. From there a game-plan gets created. There are guys that just like renting out single family homes, which by the way still can cash flow $500/month. I have one friend I helped who bought a TH for $84k and is cash-flowing $600/month.

I tend to be in that group (single family detached and TH's), but there are other's who love duplex's. It goes on and on, but really everything always comes back to what type of investor do you want to be? It really is just that simple. We all have our preferences, but you can make money with any type of housing as long as you buy correctly.

Good Luck!

~Chris
Realtor North/NE metro suburbs
651-307-7663
chris.block@imetroproperty.com
0 votes
Sherri Sherpy, , Saint Paul, MN
Mon Apr 15, 2013
Hi Ailan,

I did mention in the previous post that a duplex is the maximum allowed.

The 3-4 unit is where you will run into issues. Here are the guidelines from the most common first time home buyer programs:

Ramsey County: A multi-unit, owner-occupied property is not an eligible property.
MN Housing: Eligible properties...single family detached, a unit within an eligible Planned Unit Development (townhome), duplex, manufactured home and modular home.
Dakota County CDA: new or existing one to two unit dwellings, attached or detached, townhomes, condos and manufactured homes.
Minneapolis Advantage: Properties must be single family housing, which includes a detached single family unit, a townhome unit, or a condominium unit (no duplexes allowed).

I'm not sure why the other person is stating that 3-4 unit properties are eligible. Is there a particular program that you are looking at and I missed>

Sherri Sherpy
The MN Mortgage Mom
612-363-1106
sherri@iloanhomemortgage.com
Web Reference:  http://www.sherrisherpy.com
0 votes
Ailan, Home Buyer, 55104
Mon Apr 15, 2013
Hi Sherri, I have just applied my document today, I ask in person a gentlemen of Program, he said that 2-4 unit Multi-Family (Duplex, Triplex, Four-plex) is qualified too. So why the answer is different?
0 votes
Sherri Sherpy, , Saint Paul, MN
Mon Apr 15, 2013
Ahh, you missed LendSmart Mortgage on that lender list for down payment assistance. :)

The issue you will have with all down payment assistance programs is they will not allow for a 3-4 unit home. A duplex is the maximum allowed.

Let's get together! We can talk about precise requirements and stipulations with multi-unit properties. This is not rocket science, but you definitely should be working with a loan officer who knows what they are doing and can provide an iterest rate at least .50% lower than what you are getting.

Sherri Sherpy
The MN Mortgage Mom
612-363-1106
Web Reference:  http://www.sherrisherpy.com
0 votes
Ailan, Home Buyer, 55104
Mon Apr 15, 2013
Thanks for all of you.
Before deciding contact to trust Lender, I have to decide whether cancel or keep this existing Lender.

Does anyone hear about the Home down payment assistance Program ? I have just applied for a hope that I can get some aid for my first home, but the bad new that Quicken Loan does not in the Approval Bank list of this program. One more strong reason to find another Lender, right?

Here is listing of bank that signed in Home down payment assistance Program: Wells Fargo Mortgage, Business Bank DBA Prime Mortgage, Lake area bank, Price Landing, MarketPlace, Midcountry Bank, Wintrust Mortgage, Woodlands National Bank, Waterstone Mortgage.

@ Sherri: Thanks for helping me. I will pay attention of your infor. I am on the negotiated process, I have offered the home, get approval report and have to make decision within 2 days to get the earnest Money back.

@Matt Brown: Unfortunately, my Real Estate's also broker. Maybe It can be changed, right? Thanks for your help.

@Everyone: I do need someone's is Lender Broker that is guru about investment, Market, understands rental properties to do business with. And can give me the good rate Loan. Thank you.
0 votes
Matt Brown, Agent, Roseville, MN
Mon Apr 15, 2013
Hi Ailan,

I am very sorry to hear about your unfortunate experience with your current Realtor and loan officer. If you have signed a contract for representation with your the Realtor and you are unhappy with the service you have been provided, you can ask to cancel the contract. If the agent is not willing to help you in that regard then you will need to contact their real estate broker and explain the situation to the broker.

If you would like some honest advice and consultation give me a call at 651-343-3304 or send me an email at mattbrown@kw.com. I would be happy to answer any questions that you have.

Thank you and have a great day!

MATT BROWN

Keller Williams Integrity
2680 Snelling Ave N, #100
Roseville, MN 55113

Office: 651-203-1700
Cell: 651-343-3304
E-Fax: 651-340-4072

Visit my website below or see me at: http://www.trulia.com/profile/mattbrownrealtor/

http://mattbrownrealtor.us
0 votes
Chase Lenz, Agent, Minneapolis, MN
Mon Apr 15, 2013
Hey Ailan,
Sherri and I will provide you with great service and get this all straightened out from here.
Give me a call and we can go over where you're at and what options you have from here.

Thanks,
Chase Lenz
612-819-4474
0 votes
Sherri Sherpy, , Saint Paul, MN
Mon Apr 15, 2013
Hi Ailan,

I am sure that all of us can empathize with the potential lack of good information that you have received. It is unfortunate. I cannot speak for the real estate side...for example, did you sign a buyer's agreement? And are you still in the inspection contingency phase? Is there a chance of losing your earnest money?

As far as the lender, if your scores truly are way above 640, then you are simply getting ripped off. Sorry, but this kind of stuff drives me insane. The rate that you were quoted for FHA financing is way too high.

I can recommend Chase Lenz. He is a wonderful, highly knowledgable AND honest to a fault real estate agent. But before you do anything, make sure what your obligations are or are not to your current agent. Chase's number is 612-819-4474.

Sherri Sherpy
The MN Mortgage Mom
612-363-1106
sherri@iloanhomemortgage.com
0 votes
Ailan, Home Buyer, 55104
Mon Apr 15, 2013
Hello Everyone,
I do appreciate all of your guidelines, Im so lucky to be here to meet you and get your advices.

About my broker/realtor, Im first home buyer and it is so hard for me in situation that my realtor/ broker did not give me any helpful advice about potential cash flow area, type of house, price negotiation strategy or anything else. She seems irresponsible or lacking of knowledge about investment, I don't know why. I have to find myself Lender with so high rate loan when my credit score is far higher than 640, but my realtor/ broker did not tell me trying shop around. She suggested me buy a single family but I learn myself it is better to buy multi family. She did not give me advice in negotiation price, so I lost two times of fee of inspector and appraisal fee because the house I offer is higher up to 10k compare to appraisal value.

About broker of Lender, she did not give me explanation clearly about the restriction of 3-unit/4-unit, just tell me I only buy 2-unit. And the rate is 3.75%, her commission 1.6% and tell me all the term is could not be negotiated. What is wrong here with my team? I always have to research myself almost everything.

Can I change my team when I have not closed any transaction?

About self sufficiency test: I believed that I am qualify for all of this requirement. At that time, I am pending with the 2-unit home that has up to 7 beds, ( 1 unit has 3 beds and 1 unit has 4 beds ) , the location is very good for cash flow, 55103, 2 block away from light rail, near Capital House, Downtown, U of M, market, opposite to Church, School. The PITI is $1,288 ( with tax, 1.35% mortgage insurance and 3.75% rate, term 30), the exist leasing income in 1 unit is valued by Appraiser is $1195. But the home price I offer is higher 10k compare to appraiser's price. My realtor always advices me offer a highest price, even higher than the listing price. I do not know why.

Due to believe I could not get 3-unit/4-unit, I have to rid off many triplex, quad that are very potential for cash flow.

Does anyone can be better than my existing Team ? I am grateful for all of your advice!
0 votes
Tony Grech, Mortgage Broker Or Lender, Southfield, MI
Mon Apr 15, 2013
Hi Ailan
3 or 4 unit homes have more restrictive guidelines. Sure FHA allows you to purchase a 3-4 unit property so long as you will live in one of the units, but the approval rules are different than for a 1 or 2 unit home.

Here are the basics...

•SELF SUFFICIENCY TEST- The borrower must meet this test for either a purchase or a refinance. The test states this :
Gross rents less the vacancy factor for all units, including the owner-occupied unit, must be greater than or equal to the PITI for the subject property. The Vacancy Factor is explained here : http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi…

In layman's terms, the total rents must be the same or greater of the total monthly mortgage payment, to include taxes, homeowners insurance, and the mortgage insurance. These rents must be determined by a FHA certified appraiser. Meaning that you can't use rental leases for this specific test.


•RENTAL INCOME TO QUALIFY - You still need to also qualify with the normal debt-to-income ratios in regards to your income, in which you can use the rental income. But you can only use 75% of the rental income for the purpose of this qualification. As the primary borrower, you can't use what you would pay for that unit as rent to offset your mortgage. All you are including in order to qualify is your monthly gross income.



•RESERVES - When buying a 3 or 4 unit, you must have 3 months PITI in reserves. These reserves can't come from a gift.

To sum it up, it is quite possible that you don't meet the approval requirements to purchase a 3-4 unit property. Then again, you might. I would definitely have your loan officer explain it better to you so that you can proceed accordingly.

hope this helps!
0 votes
Hello Donald,
Im first home buyer and it is so hard for me in situation that my realtor/ broker did not give me any helpful advice about potential cash flow area, type of house or anything else. She seem irresponsible or lacking of knowledge about investment, I don't know why. I have to find myself Lender with so high rate loan when my credit score is far higher than 640. She did not give me advice in negotiation price, so I lost two times of fee of inspector and appraisal fee because the house I offer is higher up to 10k compare to appraisal value. About broker of Lender, she did not give me explanation clearly about the restriction of 3-unit/4-unit, just tell me I only buy 2-unit. And the rate is 3.75%, her commission 1.6% and tell me all the term is could not be negotiated. What is wrong here with my team? I always have to research myself almost everything. Can I change my team when I have not closed any transaction? Thank you.
Flag Mon Apr 15, 2013
Hi Tony,
Thanks for your explaination. It is very helpful. Even I researched all last night about this policy but im first home purchase, so it is not easy to understand. Of course I will occupy in 1 unit. But today I ask Quicken Loan ( the Lender gave me pre-approved letter), I understand that they only accept 2-unit, that is their own policy. I am considering about looking for better lender. Thanks for your help.
Flag Mon Apr 15, 2013
Donald James, Agent, Edina, MN
Mon Apr 15, 2013
Yes, FHA lets you purchase single family, duplex, triplex, or fourplex as long as you live in one of the units. You may have to show reserves for a larger building. It sounds like you may not have adequate guidance. In investment properties you must have a strong team working for you: a Realtor who understands rental properties, investments, etc. Your mortgage broker must know this market as well. If either of these two are not on top of the investment game find people for your team that are. This listing looks a little overpriced for the area unless there are great tenants in the building and it cash flows. Remember my rules of investing in rental property: 1) Two or more bedrooms in each unit, 2) location must be a great rental area but also an area where you can resell the property with improved cash flow, and, 3) MUST cash flow.
Web Reference:  http://www.mywra.net
0 votes
Matt Brown, Agent, Roseville, MN
Sun Apr 14, 2013
Hi Ailan,

FHA guidelines DO allow one to purchase a property up to 4 units as long as you occupy one of the units. If you would like me to refer you to a great loan officer that has a wealth of knowledge on FHA guidelines just let me know. My contact info is below.

Thank you and have a great night!

MATT BROWN
Keller Williams Integrity
2680 Snelling Ave N, #100
Roseville, MN 55113
Office: 651-203-1700
Cell: 651-343-3304
E-Fax: 651-340-4072

Visit my website below or see me at: http://www.trulia.com/profile/mattbrownrealtor/

http://mattbrownrealtor.us
0 votes
Frank D'Ange…, Agent, Minneapolis, MN
Sun Apr 14, 2013
The safest explanation will be to discuss this with a loan officer or Realtor who may know your credit and/or buying goals. I'm guessing that you may not have neither or neither one are supporting you with the answers you need. Ask them directly or find someone to work with who will answer your questions. There is much more information necessary to answer this question directly. Yes on the surface you can purchase 3 or 4 unit buildings; however there is much more information necessary. Sorry!
0 votes
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