A house hack is a real estate investment strategy that can help you get on the property ladder while earning rental income and achieving financial freedom.
In this blog, we’ll discuss what a house hack with a multifamily loan is, why it’s such an attractive option for aspiring homeowners and landlords, and how to make your house work for you.
How To Finance Your First Multifamily Building
Buying your first property is never easy, you need to know how much you can afford, what financing options you have and you or your real estate agent might need to do a market research, check rental prices for specific areas and compare it to house prices to calculate your potential income.
There are many options to finance your property, however when you are starting your journey with investing you want to put as little money as possible and get the biggest property possible.
The best fit for you would be an FHA loan where you just need to put 3,5% down and finance up to 4 unit property.
The property needs to be owner occupied which means you need to live in one of the units for at least 1 year and you can rent other units for extra cash which can be used against your liabilities (PITI – principle, interest, taxes and insurance).
There are specific guidelines for maximum loan amounts per county from HUD which can be checked on a government website.
Requirements For Loan For Your First 4-units Building
Based on a HUD guidelines to finance 4 units property you need below:
- Steady job for at least 2 years (provide W2s from 2 last years and pay stubs from last 30 days)
- Minimum credit score of 580 for financing with 3,5% or 500 credit score for 10% down – (You might needs to look for 500 credit score lenders online)
- Two forms of valid identification (driver’s license, Social Security card, passport or state ID)
- At least 18 year old
Benefits Of House Hacking With Government-Insured Loans
Government can help you to finance your first investment property by helping you to insure the loan so investors are able to lend you money with the minimum requirements.
Here are benefits of using FHA government insured loans for first time home buyers (if you didn’t own your home in the past 3 years you are still a first time home buyer in the eyes of the government).
- Possible DownPayment assistance from lenders up to $6,000+ or $100 down programs.
- Building equity – As you rent out the extra units of your house, this can help pay off your mortgage faster and build equity in the property.
- Generating rental income – Rental income from the other units helps to cover a portion of your mortgage payments and provide additional financial security.
- Tax deductions – You may be able to take advantage of tax deductions related to owning a rental property such as depreciation and repairs.
- Lower down payment requirements – Having a smaller down payment can make it easier for first-time buyers who don’t have a large sum saved up for a down payment.
Risk Associated With House Hacking
On the plus side, you can live in a quality home without having to pay market rent rates and use rental income to offset your housing costs.
However, house hacking with an FHA loan also carries some risks; tenants may cause damage to the property or fail to pay rent on time, which could put you in a difficult financial situation.
Alternatives To FHA Loan And Other Investment Programs
If an FHA loan isn’t right for you, there are a variety of other financing options available for four unit properties.
Conventional loans typically require a larger down payment (5% or more) than FHA loans and they require a higher credit score (typically 620 or 640 FICO).
However they may offer lower interest rates and better terms. You could also consider seller financing or partnering with another investor in order to purchase the property.
Tips To Make Your First Investment Successful
The key to successfully house hacking with an FHA loan for four units is thorough planning and preparation.
Research local real estate markets thoroughly before investing, familiarize yourself with landlord-tenant laws in your area, and make sure you have enough resources available if something goes wrong.
Additionally, consider hiring a professional property manager to help you with the day-to-day tasks of being a landlord.
House hacking is an attractive option for many aspiring homeowners and landlords, as it offers lower down payment requirements and can help you build equity in your property faster through rental income.
If you’re interested in getting started with a house hack, start by finding a lender who offers FHA loans in your area and researching properties that meet the requirements for an FHA loan.
With some careful planning and research, house hacking may be the key to unlocking financial freedom.