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??
- Anonymous9 years agoBest Answer
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.
.Source(s): http://apartmenthouseprofitmachine.com/smart-guide... https://www.google.com/comparisonads/mortgages#ti=...
- richard tLv 59 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."Source(s): http://www.hud.gov/buying/loans.cfm
- kaszinskiLv 43 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
- real estate guyLv 79 years ago
No, it's not true.