Can I Buy a Home with an FHA Loan If I have a Student Loan?

Can I Buy a Home with an FHA Loan If I have a Student Loan?This year the Federal Housing Administration made adjustments to its underwriting handbook that significantly affect potential buyers that have outstanding student loans. Changes became effective September 14, 1015.

The bottom line is, “yes” you can buy a home, even with an FHA loan, but there are stricter debt-to-income ratios you’ll have to comply with and new rules about gifts used toward your downpayment.

Here’s the scoop

In the past, if your student loan deferment went beyond the 12 months following your mortgage loan date, the future payment did not factor into your debt-to-income ratio. This meant you might qualify for a higher monthly payment. Other deferred debts, including those with balloon payments, also fell into the 12-month rule.

The new ruling includes the potential payment amount in the debt-to-income ratio, but here’s the rub: not only do you have to provide all documentation for the obligation, if you don’t know for certain what the payment will be, and can’t obtain that from the lender, your mortgage underwriter must include five percent of the outstanding balance for non-student loans and two percent of the outstanding balance for student loans into your monthly obligations. This formula could raise your monthly debt to income significantly.

A high a ratio of total household monthly debt payments compared to your income (DTI) signals that you carry too much debt. Chances are, you’re more likely to default on your mortgage. Traditionally, lenders want your DTI number lower than 43 percent to 45 percent. Above 45-percent applicants often find it tougher getting approved for a loan compared to borrowers with lower DTIs. Under the new restrictions, the FHA requires two percent of the outstanding student loan balance added into the calculation of the monthly DTI.

If you have a deferred student debt balance of $30,000, for example, the FHA ruling now imputes a $600 a month repayment obligation (two percent of thirty thousand) onto your DTI. This calculation is double the amount that Fannie Mae and Freddie Mac use to calculate your DTI.

If you have a non-deferred payment plan, the actual monthly payment will be counted toward your household debt along with any other debt obligations.

According to the FHA, its goal with the changes is to create sustainable affordable homeownership and not to place buyers in a financial situation that become unaffordable once they have to begin paying on their student loans.

More changes to the rules

In addition to the student loan and deferred obligation changes, the rulings on gifts from relatives and friends require stronger documentation from the giver’s financial institutions regarding the nature and amount of the gift. If a “gift” might have to be repaid, the FHA views it as a loan and requires the repayment amount to be included in the monthly obligations. In the past, “loans” between family members toward the downpayment of a home could be camouflaged as a gift. Analysts believe that since many people will be unwilling to expose their financial information to the extent now required, they may be less inclined to give the gift in the first place.

So, what should you do?

  • Stay current on any obligations that you have.
  • Collect the information and documentation for any deferred loan or obligation (including that 18-months-same-as-cash flat screen TV) so that you know the exact date you must begin payments and the exact amount of each payment. If you don’t’ know the exact amounts, contact the financial institutions for up-to-date information.
  • Once you know how much your monthly payments are going to be, start putting that amount into a savings account each month. Ideally, this should be a separate account from where you are saving your downpayment. Doing this for at least six months will prove to you and your lender that you are well able to keep up with the payments once the deferment ends.
  • If a family member offers a “gift” toward your downpayment, make sure it truly is a gift and will not require future repayment. Let them know that you are seeking an FHA loan and that you may need documentation from them regarding the nature of the gift during the underwriting process.
  • Live lean: don’t incur additional debt in the six to 12 months leading up to when you want to buy a home.

Let your real estate professional help you calculate the amount of home you can afford. The more time spent looking at the right homes instead of those out of reach, the sooner you’ll find that perfect space for you.

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There's an App for That

There's an App for ThatYou don’t know what you don’t know, so how many homebuyers or home-sellers know they can use their smart phones to get smarter about the process?

It doesn’t matter how far along in your home-buying process you’ve come, you can always tweak things to simplify your life. Adding these nifty apps to your smart phone frees up some of your time to find just the right home.

HOME by FannieMae™

The HOME by FannieMae app gives your resources to prepare your finances, figure out what you can afford, learn all about the process of buying a home, ways to plan for home maintenance and even calculate potential savings on future home mortgage payments.

It features a dashboard to help you keep track of how you’re moving through the process and even offers instructive videos.


Available for both Apple and Android phones, this app features unique technology that instantly tells you all about any home you snap a picture of. You can learn how much it is worth, when it last sold and even how much it sold for. You’ll see information about the number of bedrooms, bathrooms and garage spaces. You can see the lot size and even the school district. The app gives you access to information about more than 90 million homes across the United States. For homes currently on the market, you may even have access to interior photos.

Using HomeSnap helps you narrow down your home search before you go to the effort to take home tours.

House Hunter

The HouseHunter app allows you to keep track of your entire search for your dream home. It stores information, notes and pictures for every home you look at and even allows a rating system so you can evaluate and compare each home you tour. Score each home based on requirements you specify with House Hunter’s proprietary scorecard system. View images of multiple homes at once to help you remember which house is which.


Not just for real estate, the AroundMe app shows you what you can find in any area. So, if your find the home of your dreams, you can also see the nearby hot spots, where to find the dry cleaners, restaurants and even hospitals. It can connect you with taxi services, points of interest and a plethora of other nearby information so that you can learn about a potential neighborhood quickly without having to do exhaustive searches.

Dictionary of Real Estate Terms

Every industry has its own language and LD Real Estate Dictionary is the app that can help you. From “points” to “policy” this app has more than 2000 common real estate terms and their definitions in common English. Navigate the massive paperwork with ease and understanding with this app.

Your agent’s mobile-friendly site

Best of all, your real estate professional’s own mobile-friendly responsive website can keep you connected to the latest listings so you can check them out on your way home from work. Check out the new listings, view stunning images and contact your agent all from the mobile site.

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School for Homebuyers?

School for HomebuyersNow that the kids have gone back to school, vacations are over and the weather is starting to turn, it’s time to get serious about hunting for a house. Homebuying used to be simple: you saved up some money for a downpayment, enlisted the aid of a real estate agent, found the home you wanted, made and offer and closed the deal. But since the housing meltdown, first-time buyers need savvy skills to negotiate the complexities of credit scores, pre-qualifications, pre-approvals, loan options and closing.

Last April, FannieMae announced its new HomePath Ready Buyer Education Program for first-time homebuyers.

Available completely online, you can attend homebuyer school from the comfort of your living room. When you “graduate” you may qualify for assistance for up to three percent of the purchase price in closing cost toward purchasing a qualified HomePath property. According to FannieMae, this means that on a $150,000 home, you could save up to $4,500 in closing costs on a HomePath qualified home. (Homepath homes are those owned by FannieMae.) More than that, unlike your college tuition, Fannie Mae says it will reimburse your $75 tuition cost at the time of closing on your new home. What could be better than that?

What you’ll learn

Buying your first home is daunting. You have your own fears of taking this gigantic financial step mixed with a boatload of new information, complex processes and paperwork, and new responsibilities. The daunting task of saving up the downpayment actually pales in comparison to the paperwork and meeting the other requirements of purchasing a home with a mortgage.

The total course should take you about four to five hours to complete and you’ll take a quiz (no daunting final exam here) at the end. In the nine, 30-minute sessions, you’ll learn:

  • How to determine what you can afford
  • Homebuyer pitfalls to avoid
  • Ways to decide which home to buy
  • Options for lowering your down payment requirement
  • The best things to include in your offer
  • How to navigate closing complexities

The course exceeds both HUD standards and the National Industry Standards for Homeownership Education and Counseling, but is designed to be both user-friendly and doable from you’re the comfort of your sofa, smart phone or tablet.

Eligibility for the closing cost assistance and reimbursement of the training cost requires that the buyer complete the entire HomePath Ready Buyer training course online and receive the Certificate of Completion.

Buyers must be first-time homebuyers. NOTE: A first-time homebuyer is defined as a homebuyer that did not own property in the last three years, so former homeowners affected by the recession that have improved their credit score can qualify for the program.

The buyer must plan to live in the property as their primary residence. That means that action or investor sales are not eligible.

Exclusive offers

Completion of the HomePath program offers buyers an exclusive “first look” at newly listed foreclosed properties. During the First Look™ marketing timeframe, buyers can make an offer on a foreclosed home without competition from investors, flippers and other buyers looking for a great deal. Utilizing the First Look program, Fannie Mae hopes to promote homeownership and be instrumental in contributing to neighborhood stabilization. When homebuyers can negotiate and purchase foreclosed properties before they are made available to investors, the potential for pride of ownership to lift the community increases.

Fannie Mae uses real estate professionals to complete the home-buying process, so if you’re interested in the HomePath program, contact your real estate professional for more information.

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Sell Your Home in Any Season

Sell Your Home in Any Season

As we slip into autumn, many homeowners take their homes off the market, believing that their home will not sell in the fall or winter. While it is true that selling heats up in spring and early summer, people buy homes every day of the year.

Historically, the selling cycle followed a general pattern of picking up in the spring and summer for buyers with young families, tapering off in late summer and picking up again in the fall. While colder months—particularly November and December—slowed down due to the holidays.

New studies show, however, that on average, homes listed between Halloween and New Year’s Day are more likely to sell, often sell faster and even fetch closer to the asking price. Typically, because there are fewer houses on the market, the competition for homes that are listed increases.

Shrewd buyers often seek bargains during these months, and buyers without children don’t set their buying guidelines based on the school year. The truth is that just as sellers’ situations differ (job change, young family moving for school, retiring), buyers’ situations range from new employment or business relocation to seeking a second home to celebrate holidays. Sellers that keep their homes on the market into the fall season significantly increase their chances of selling.

Reasons for off-season home sales include:

  • Less competition: Buyers believe the old “spring only” selling myth too. They may believe that in the fall and winter they won’t face the competition for a prized home that results in bidding wars and ultimately paying higher prices.
  • Personal motivation: People move when they need to, so a new job in a new town or a buyer finally saving up the last of their downpayment doesn’t depend on a specific time of year.
  • Age and situation: S. Census statistics show that older folk and those without children tend to move in the fall and winter months. In fact, by percentage of population movement, October rates higher (10.2%) than May (7.5%) and is nearly equal to both July (11.2%) and September (11.5%).
  • Internet shopping: Most buyers shop online first. That means they can shop year ’round, and all hours of the day or night. They can see images of your home online in all seasons, so they have a realistic expectation what your home looks like seasonally.

Before putting your home on the market

Assess your needs before listing your home. Do you need to relocate immediately? Do you have school-aged children you need to get into a new school system at the start of the school year? With more flexible relocation dates, you can adjust your selling period to the season that best reflects your home’s qualities.

Beach, mountain or lake homes may sell best in the early spring and summer months so that buyers can enjoy them in their first year, but if they can be equally enjoyed in fall and winter, play up those qualities. A mountain home near a ski resort may sell well in the fall and early winter, while a lake home in a colder climate will appeal to enthusiasts of other winter sports such as snowmobiling and cross-country skiing. Beach homes may be more attractive to snowbirds as fall and winter approach.

No matter when you need to sell, your real estate professional can guide you in the best ways to market your home for any season.

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New FHA Leeway for Approvals

New FHA Leeway for ApprovalsHaving a low FICO score usually means there is no way for you to quality for a FHA mortgage, but changes to the underwriting process August 2015 means that more borrowers may qualify. According to some analysts of the new policies, up to 100,000 new potential borrowers may now qualify if you can convince underwriters that you can make the payments.

Loans based on FICO score

Since the sub-prime meltdown, mortgage loans to borrowers with FICO scores below 660 fell below $150 billion per year overall and remain there. This lower number of loan originations, due to lenders shying away from loaning to borrowers with scores under 640 results from poor lender performance reviews for higher-than-average loan defaults.

Neighborhood Watch System

To encourage more borrowing to the subprime market, the Federal Housing Administration made enhancements to their Neighborhood Watch Early Warning System to better compare the performance of loans to borrowers with lower credit scores. The FHA hopes that more accurate assessment will improve underwriting processes to include other characteristics outside of FICO scores for determining creditworthiness.

FICO scores

The Fair Isaac Corporation (FICO), a company that provides software to calculate potential creditworthiness, developed a scoring system ranging from 300 to 850 points based on their specific formula. Access to your FICO score comes via the three major credit bureaus (Equifax, TransUnion and Experion). The FICO score, based on information each credit bureau keeps about you in your credit file, includes your credit history—loans and repayment, credit card usage, etc.—the age of your credit, and the types of credit you use. Your score can differ among the three bureaus depending on the information they have in their system about you.

What’s new?

Under the new system, FHA’s system for judging lenders changes to offer a more fair metric so that lenders to communities with a higher concentration of residents with lower than average FICO scores may offer loans without the fear of penalties simply because of where they focus their loan business. Borrows falling into the potential new category include:

  • Younger buyers
  • First-time buyers
  • Minority households
  • Moderate-income working families

Potential buyers recovering from job loss during the recession when they may have gotten behind on paying bills may now have an opportunity to prove their creditworthiness despite their FICO score. These are the people with a reliable income, an ability to repay their loan and acceptable debt-to-income ratios.

While some lenders may wait to see how the new metrics will work, others may begin offering loans and programs to take advantage of the opportunity. If you’re hoping to buy a home in the near future, but have wounds from the recession, don’t count yourself out … shop different lenders to see if you can qualify under the new underwriting guidelines.

If you’re looking for a lender, ask your real estate professional for recommendations for your situation.

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Why Downsizing is the New Upsizing

Why Downsizing is the New Upsizing

Most people think of downsizing as something you do in retirement. The kids are grown, the nest is empty and you have all this space just gathering dust or taking up your free time with maintenance and upkeep. So, you sell the large family home to moving to a smaller, retirement-style home, free up some cash and have more to spend on leisure.

To many, downsizing is a negative: smaller house, less space, cutting back. But, downsizing can be an important step in “upsizing” your life. You just have to determine what “downsizing” means to you.

Smaller Space, Bigger Life

Moving to a smaller space (as in “fewer square feet”) doesn’t have to mean that you have less living space. Many family homes have large square-footage cut up into little spaces to house multiple family members. When downsizing from a large family home, look for a layout that maximizes the living space so that you don’t feel closed in. That might mean an open floor plan, more windows, adding outdoor living space, foregoing formal spaces or even choosing a wall-less loft.

An important idea to keep in mind is that downsizing shouldn’t mean moving into a smaller version of what you already have. Moving from a four-bedroom/three-bath 5000 square-foot home into a four-bedroom/three-bath 1800 square-foot home just feels cramped and crowded. Moving your living area, home office and master bedroom into an 1800 square-foot two bedroom, open floor plan, however, can seem like a mansion. In fact, some people find that fewer rooms mean more living area to enjoy.

Freed-Up Cash? Or, Freed-Up Life?

Okay, yes, for some people, the purpose of downsizing is to free up cash for other things. If however, freeing up cash isn’t your aim—for example, if you need to reinvest all the money from the sale of your family-sized home as part of your financial plan—downsizing into an upscale high-rise condominium or townhome in your favorite urban area can massively upgrade your lifestyle.

Think of it … spend your evening at the theatre, dining out or entertaining friends at the rooftop pool. Just being able to lock the door and head to the airport for some long-anticipated trip without having to arrange for a house-sitter, lawn-care and yard work, or the myriad other requirements of property frees you to travel on a whim, be spontaneous, grab a good deal on a weekend cruise or visit the kids and grandkids as often as you like.

Even if you can’t afford a luxury place, where you locate your new home can free up your life from the tedious efforts of maintaining a larger property. If having freedom to do other things is important to your new life goals, make certain your real estate professional knows: lifestyle options may exist that you’ve never thought of.

Preparing to Downsize

Whether by choice or necessity, moving from a larger space to a smaller one requires devising a plan.

Prioritize: As the lyrics to “The Gambler” go, “Know when to hold ’em, know when to fold ’em.” Determining the most important items to keep and what to give up means examining both your logical brain and your feelings. Logic might dictate that you massively pare down your belongings, but your heart knows you’ll regret getting rid of your grandmother’s cedar chest. Experts suggest separating your belongings into four or five categories:

  • Trash — of course, getting rid of trash includes broken items that can’t be repaired or items too stained or dirty to be given away.
  • Use/Keep — in this category, place items that you would just have to replace in your new home (appliances, basic furnishings, tools). Just don’t keep extras of these items. In a smaller space, you probably only need one.
  • Love — some things just need to be kept in the family. This category might mean keeping the item or finding a family member that wants to enjoy it for a while. Sharing heirlooms can bring a family closer together.
  • Sell — E-bay, craigslist, yard-sales … the list for making money from your belongings goes long. If you don’t want to handle it yourself, you can even hire a service to do it for you.
  • Give — Charities always appreciate clean, useful items. Just make sure to separate trash from the items you’re giving.

If you’ve thought about downsizing, your real estate professional can help you determine the best options for your lifestyle and goals.

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Creating an Idea Book for Your New Home

Creating an Idea Book for Your New HomeContemplating buying a new home or remodeling the one you have? Before you call your real estate agent, hire a designer or head to your local Do-It-Yourself superstore refine your ideas by creating an idea book.

An idea book, exactly as the name implies, is a repository for all the ideas you have about what you’d like. These include style—a Ranch, Cape Code, Victorian, French Country or maybe an Arts and Crafts style home—colors, size, layout and all the other things that go into the perfect home of your imaginings.

Old School

Using a notebook or scrapbook, include cutouts from magazines, advertisements and brochures. Or, hang pictures on a corkboard or stick them up on the refrigerator. You can go simple with a notebook, scissors and glue stick or fancy with a 12″ x 12″ scrapbook with decorative pages and embellishments in slip-sheets.


Using Houzz, Pinterest, Photo Stream or other virtual options helps you focus on what you really want. In fact, many contractors suggest using one of these boards to help you show them what you’re really looking for.

Get Started

At first, add whatever tickles your fancy. If you see it and like it, stick it in the book or on the board. Your idea book might seem cluttered and disorganized at first. You can help this by dividing it into sections such as: rooms (kitchen, bath, living), architectural style (mission, craftsman, modern), colors (blues, greens, reds or cool vs. warm), even feelings (happy, restful, family-friendly). As your ideas grow, reorganize the sections or re-combine images and colors to whatever pleases you.

Over time, you’ll refine what you like. You’ll notice that you’re drawn to a certain style home, specific types of cabinets and finishes, flooring, fixtures and countertops, even distinct roof shingles and slopes. You’ll see drawer pulls and doorknobs appear over and over in your additions to your book. Get as specific as possible, or leave yourself open to options, but use your idea book to frame the things that are most important to you. When a dominant style, color or type appears, move it to the front of the idea book and narrow down your choices even more. Go look at samples of tiles for the backsplash, flooring and hardware. Take pictures of what you like with your smart phone and add them to your board. Look at model homes and attend open houses (but if a home is occupied, get permission before taking pictures).

When you keep coming back to the same images, you have a pretty good idea of what you want. Take time to remove items that no longer inspire you or that you realize don’t work for your situation, family size, living style (i.e. do you truly want a formal dining room, or just a bigger family eating area?).

Now, you can take that book to your real estate professional or designer to get an idea of how to locate the perfect home for you, or remodel the home you have into the one of your dreams.

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Decorate and Economize at the Same Time

Decorate and Economize at the Same Time

Once you get into your new place, you want to paint, upgrade fixtures and add window coverings. While at it, consider extras that improve your bottom line. Some simple ideas that lower electricity and gas bills put your personal decorative stamp on your home at the same time:

By far, you lose the most energy lost in your home through the combination of walls (35%) and roof (25%). Both areas benefit from additional insulation. The next place you lose energy, via the windows and doors— those beautiful openings that let in sunshine—results in another 25% of your energy loss.

Eventually, you want to upgrade your insulation if you lose energy through the walls and roof, and lower U-value windows and frames if your windows are older, but in the interim—especially to stretch your budget after buying your home—you can save on energy bills and decorate at the same time by careful selection of window coverings.

Thermal window coverings

We think of “thermal” as keeping heat in (as in waffle-weave thermal underwear), but thermal window coverings keep the cold air out in the winter and the heat out in the summer. No matter what the season, they allow you better control of your indoor temperature and therefore a reduction in your energy expenditure.

  • Cellular shades: These “honeycomb” shades create trapped pockets of air between two or more layers. The more layers of cells, the more energy efficient these blinds are. They create an “airspace” barrier between your window and the interior room.
  • Thermal interior blinds (mini-blinds, plantation-style blinds, etc.) have varying degrees of thermal protection. The advantage to slatted blinds is more control over the light that enters the room, and the ability to direct the light upwards or downwards to diffuse its strength and glare. In addition, the curve of the slat allows moving air to become trapped in the interior of the curve or flow over the exterior of the curve so you can adjust how much air comes into the room from an open window.
  • Thermal exterior blinds: typically made of aluminum, bamboo, wood, steel or vinyl, exterior blinds lower or raise onto rods and channels and are mounted above the window. While these blinds provide shade and privacy, they, some homeowners associations to not allow their installation as they change the appearance of the home’s exterior.
  • Draperies and curtains: by far the easiest to install, thermal draperies and curtains reduce heat loss in the winter and keep the heat out in the summer. They provide “blackout” conditions for improving sleep or for use in media rooms. With various levels of thermal curtains on the market, the greatest gains keeping heat out come from those with white acrylic backings—the more “passes” (layers) of acrylic, the thicker and more efficient the fabric. Additionally, the thicker the lining, the more they block light, making these ideal for bedrooms.
    To keep cold out in the winter, layers control temperature better because heated air becomes trapped between the layers. Installing a lining between your decorative curtain and the window, or attaching a thermal lining to the back of your curtain improves the R-value of your window covering.

Other options to adjust how heat and light enter your home include reflective window films and mesh window screens, awnings and roof overhangs.

Ask your real estate professional to help you determine which changes (exterior or interior) to make for improving your energy efficiency in your new home.

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Back-to-School Organization

Back-to-School OrganizationWith school starting, it’s time to do a little reorganizing to make early mornings and after-school activities run smoothly. When starting school after moving to a new home, consider some of the additional challenges your children face and plan accordingly. Implement changes to the household gradually so that your kids adjust before that big first day!


Over the summer, kids typically wake later in the morning and fall asleep later in the evening. To ease the adjustment, begin walking back the bedtime hours until you reach the optimum time at least a few days before the start of school. To help in the transition, install blackout curtains in bedrooms and avoid blue light from television, computer, tablet and phone screens.

Breakfast and Lunch

Stock your refrigerator with quick, nutritious options for breakfast and to-go lunches. Choose health-conscious options that your kids like and have them help you pack their lunch the night before school.


If your children wear uniforms, having several options so that you don’t have to launder them at night during the week is helpful. Have children pick out their clothes the night before. Create a special space in their closets just for school clothes so you can tell at a glance if you need to replenish their wardrobe before the weekend.


Creating a shoe station at the door saves time on hunting for that lost shoe and keeps wet, dirty or muddy prints from tracking through the house. Consider a separate shoe cubby for each child and hang hooks above each cubby for jackets and backpacks. If your child plays sports, create a separate cubby for uniforms, equipment and sports shoes.

After-School Snacks

Set up an afterschool snack station in a basket or decorative bin on your counter and a specific shelf in your refrigerator for juice, sports drinks and veggies or fruit.


Create a homework station. For younger children, a specific space off the kitchen or living area keeps supplies and assignments contained and organized. Set up organizer boxes for each child to place assignments and set a calendar and bulletin board above the station to keep track of due dates, after-school activities and special events.

Older kids benefit from having a desk or study area in their rooms or a quieter office space, but a calendar on the outside of the door lets you keep track of their schedule while offering them some privacy.

Preparing For the Big Day

Starting a new school in a new neighborhood requires advance preparation. If your child walks to school, take the time to go over several routes to and from school. Learn where crossing guards assist on busy streets and where sidewalks offer safety as they walk to and from school. Locate bike lanes and the safest biking routes from your home. Locate bus stops and learn the correct bus numbers.

If you’re looking for a home in a specific school district or need information about your neighborhood schools, check with your local real estate professional for up-to-date statistics and data.

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Want to Become a Real Estate Investor? Think about Buying a "Live In" –Plex

Want to Become a Real Estate Investor?

As a first foray into investment property, buying a duplex, triplex or quad and living in one unit might be the way to go. In the current market, entering into rental ownership might give you the benefits of homeownership with the additional benefits of rental income under just one mortgage.

Some advantages to buying a multi-family property and living in it include:

  • Paying yourself rent
  • Have multiple units inside one mortgage
  • Create cash flow and live less expensively while tenant(s) pays the bills
  • Access to long-term financing

Of course, a deal is not a deal is not a deal!

So if you buy a property where no one wants to live or pay too much for the property you won’t reap the benefits, but if you do some homework, you might find a gem that can give you ongoing income stream. Importantly, the property needs to be in an area YOU are comfortable living. Typically, that means you’ll be looking at investment properties in the mid- to higher price range or distressed properties in a great area that need fixing up.

Finding the Great Deal

To find a great deal, you need to educate yourself on the process. If you’ve never purchased any property before, don’t rely on what you see on television “Flip” shows. You need to find a real estate professional that knows the area you’re interested in, and knows both the rental market and the real estate market. It also helps to read some solid real estate investment books or take a class, but don’t fall for the “zero-cost investment schemes” that abound. Real business decisions require research, a plan, real investment of time or money (and most often both time and money) and great advice from a knowledgeable team.

Finding Financing

The tightened credit market doesn’t just apply to single-family homebuyers. The best possible financing comes from having a solid plan and borrowing from a position of strength. Debt-to-income ratios need to be 45 percent or less for a conventional loan, but can be slightly less for FHA borrows.

Ordinarily, federal mortgage insurance doesn’t cover investment properties except under specific conditions (five units or more) and only at 85%, so you’ll need to have at least 20% available as a downpayment. In fact, if you put 25% down you might qualify for an even better deal with a lower interest rate. But, if you intend to live in the property you are eligible for either a FHA or VA (if you’re a qualified veteran) loan on the multi-unit property.

Just remember that if the additional unit(s) is vacant, you’ll have to qualify for the entire mortgage based on your current income. If you have a signed lease for any/all of the additional units the FHA lender may consider the rent(s) as part of your qualifying income. Additionally, the FHA requires higher cash reserves for a triplex or quad (not a duplex) so you’ll need to have 90 days worth of mortgage payments in the bank. Additionally, when utilizing an FHA loan, any co-signer must also occupy one of the units.

A final note on FHA loans is that the property has to meet occupancy-readiness standards unless you request an FHA Insured HUD 203(K) loan.

All loans, conventional or FHA, will have specified limits based on the number of units and the county it is located in.

Other Financing

Cities, counties and states often have programs that may provide grants or other assistance for downpayments and might even offer low-cost loans.

Your local real estate professional can help you navigate your first investment in rental property, so take advantage of their expertise.

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