Real estate experts, answer this one?

I go this friend of mine who makes 30K a year and he insists that he can buy a $265,000 fourplex with 5% down and make a profit.

He says that there will be no mortgage insurance. but he is putting less than 20% down.

He also says that he can count 90% of the rent money recieved as income, thus lowering his debt to income ratio, so he qualify for the loan

I'm guessing the units would rent for around 630 a month, He would live in one of them?

Is any of this true??

4 Answers

Relevance
  • Anonymous
    9 years ago
    Best Answer

    NOPE

    he can avoid PMI (mortgage insurance) by financing with 20% down or with half of a required 20 percent down payment with a second mortgage (an 80-10-10), but i don't see that he can avoid PMI with only 5% down.

    he cannot forget about closing costs such as points, professional inspection and appraisal, etc.

    for ease of calculation, i am not including PMI or allowing for the 5% down ($13,250).

    let's also assume that he is saving $630*12=$7,560 annually in personal rent.

    based on Ohio (an example) loaning institutions:

    NO ohio banks will loan on an investment property with less than 20% down. FHA does not loan on any investment properties.

    he cannot get any "first time home buyer" deals because this is not considered a home.

    IF he could get a loan with 5% down & 6% interest (w/good credit):

    $1,411 per mo loan payment ($16,932 annual),

    $1890+$630 gross rent income ($30,240 annual) = $13,308 gross annual profit.

    NOW, he arrives at the 90% ... this only allows for expenses of $3,024

    but check this info:

    gross annual income of $30,240 (if they allow for his rent)

    minus 3.1% vacancy/deductions ($937, per website; seems low to me)

    minus prop taxes of $6,625 (low in OH),

    minus insurance, utilities, repairs, maintenance, marketing/promotion, contract services, gen'l, replacements such as stoves

    = too many $$ expenses (expenses that he must outline to accompany his bank app).

    note: i went into all of this detail for fun.

    .

  • 9 years ago

    FHA does allow up to a fourplex to be purchased as long as the owner occupies one of the units. Thus, the 5% down could be 3.5% down and a couple of percent in fees for FHA. FHA has been changing the way they do PMI as well. I think they make you pay a couple of percent up front and it is not charged after that. I am skeptical of the income counting for 90% though I suppose it is possible. Here is part of what FHA says "FHA might be just what you need. Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties."

  • 3 years ago

    The lender must be able by using regulation to provide the unique loan records to reveal they have the right to foreclose on the residing house - in the experience that they could't grant those records - you'll get the foreclosures not on time - and at the same time as they produce the unique loan records - nook them about the actual incontrovertible fact that the charge structure is diverse (it may all come out in courtroom) Get a loose talk with community RE atty AND record the employer for your state commerce Dept for a threat Fraud. reliable luck

  • 9 years ago

    No, it's not true.

Still have questions? Get your answers by asking now.