How can I buy a duplex in the bay area with a FHA preapproval with a max of 185k?

Asked by Jason Rich, San Francisco, CA Tue Jan 19, 2010

I'm a first time home buyer looking for almost any LIVABLE duplex to move into and rent the other half. I have made about 20 or so offers and EVERYONE has fallen out to these big investors making all CASH OFFERS! This is getting to be a bit ridiculous! How can the little, blue collard, hard working man buy a house and move forward with his life if these Friggin @#%#$ keep buying all these houses up? I'm extremely motivated but unfortunately I don't have $200k in the bank to beat these people. WHAT CAN I DO!?

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Todd Andrew, Agent, Berkeley, CA
Tue Jan 19, 2010
Hi Jason,

It DOES seem to be the little guy who gets squeezed out, doesn't it, and sometimes it doesn't seem to matter if times are "good" or "bad." Ellen is right, though.... while it's true that investors are turning large swaths of previously owner-occupied homes into rentals, many owner-occupant buyers are also in the market.

I don't know if this will help you or not, but might be worth investigating:…

Best of luck to you.
0 votes
Kamal Randha…, Agent, El Sobrante, CA
Tue Jan 19, 2010
Hello Jason,

I can totally understand your frustration at this market with your price point but, trust me, you are NOT alone. There are a LOT of hard working people like yourself out there being priced out of properties with more cash on hand. That price point is going to be hard to work with in most areas, but its not impossible. Would you like to see a list of what's available in nearby areas of Oakland? I would be happy to put something together for you if you wish. Good luck dear.

Kamal Randhawa
"Straight answers every time"
1 vote
Ellen Lynch, Agent, Berkeley, CA
Tue Jan 19, 2010
Hi Jason,

I work with a lot of FHA first time buyers, mostly in Oakland. I am sorry to give bad news, but in attempting to be realistic,, I think Oakland is simply out of the picture. I just closed on a duplex in Oakland that needed work.. , it was a short sale, and it closed at $210,000 which was a steal. The only way we got it was having an "in".. The buyer was very lucky and she knows it. Anything listed under $200,000 is going to likely sell for higher, and is going to need work, which eliminates FHA,, unless you can get an FHA 203K rehab loan.. but you're probably still going to be up against that price ceiling.

Also, it isn't just investors you are competing against.. I can tell you from experience, you are competing against other first time buyers who have the same idea as you.. but some of them have conventional loans, 20% downpayment, which is usually more desireable to the seller, especially to banks that are the owner (REOs). They see FHA financing as taking longer to close, having a higher rate of falling out of escrow, and they know that many items are going to be called as needing repair/replacement by the FHA appraisers, who are required to call/flag peeling paint, non-working appliances, loose electrical wires, non-working or slow plumbing etc..

The old expression, "get in where you fit in" applies more than ever now in this market. You are clearly motivated and ready, but what you're looking for is not realistic. I know it is also competitive in San Leandro, Hayward, most of contra costa county, and north.. so I think you are going to need to research some other areas outside.. find a realtor to work with who knows other areas as well.

You will probably be able to find a small, starter single family residence in Oakland or other areas in your price range, if you are diligent.. It would have to be deep east Oakland or west Oakland. It doesn't sound like you are wanting that.

Have you explored every financing option..getting a gift from a relative, or City downpayment assistance?

Good luck..
1 vote
Linda Van Dr…, Agent, Orinda, CA
Tue Jan 19, 2010
Dear Jason,

You asked me how an individual might purchase a two unit property using FHA financing. I consulted my friend who is the top mortgage broker in the Bay Area, (Dianne Crosby, La Salle Financial Services, 510-339-4300-x104), here is her answer:

FHA financing is only available for borrowers who intend to occupy the property. Your client must show that he intends to live in one of the units. The other unit can be used as a rental property, but most likely, potential income from that unit will not be counted when the borrower is qualified. FHA down payment requirements for a two unit property are the same as they are for a single family residence. The borrower only needs to put 3.5% down. Rates are excellent – for this price point, you are going to see a rate of about 5.25%, no point. If your client already owns property, he may have a tough time getting the FHA to believe that a two unit home will be his primary residence. He has to show that there is a tangible benefit in moving to the new home. The FHA frowns on anything that could “become” an investment property. Post-closing home inspections may be required where the lender actually knocks on the door to make sure the borrower lives there.

I hope this is helpful.

Linda Van Drent
Associate Broker
Coldwell Banker
Web Reference:
0 votes
Troystaten, Agent, Alameda, CA
Tue Jan 19, 2010
I think your in a really tough situation, that price point is extremely competitive. If you can increase your price you might have better sucess. You are on the right track and you need to keep writing offers, next time you and your agent are putting an offer together ask both your agent and your self what can I do to make my offer better. You are not alone in this market it is very competitive right now because the prices have dropped.

Good luck

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