Four-unit purchase using FHA loan with 3.5 percent down payment
Mortgage adviser: Brenda Wyatt. Property type: Four-unit in North Berkeley/Oakland area. Purchase price: $900,000. Down payment: 3.5 percent. Rate: 3.375 percent. Background: After having little success obtaining preapproval for a home loan with an online lending source, two best friends reached out to Brenda Wyatt at the recommendation of their agent. During the initial consultation, the pair shared their interest in a four-unit building they saw at an open house.
Wyatt held a conference call with the clients and their agent to discuss which financing option would be the best choice in a competitive market. The clients stated they did not have 25 percent down required by conventional lending, so Wyatt recommended an Federal Housing Administration loan.
When purchasing a multiunit building, FHA only requires a 3.5 percent down payment, as opposed to the conventional requirement of 25 percent down. The maximum allowable loan size (loan limit) for four units in Alameda County allows a loan amount of $1,202,925. Therefore, the clients were within the allowable limit with a purchase price of $900,000.
Wyatt also educated her clients on the benefit of using potential rents to qualify. Under some circumstances, buyers of a duplex or multiunit home can use the rental income from the additional units to qualify for a loan. FHA threeto-four unit properties must past the “the self-sufficiency test”— multifamily properties must “pay for themselves” with the projected rental income.
Although the units Wyatt’s clients were purchasing were under rent control, Wyatt confirmed that FHA uses market rents to qualify. Once the offer was presented, Wyatt held a conference call with all agents sharing the self-sufficiency guideline. The agents agreed that market rents in Nobe area of Oakland would support the forecasted mortgage.
Once the appraisal came in, the transaction closed within two weeks and Wyatt’s clients were excited to enter the world of real estate investing through this purchase.