The House Hacking Investment Strategy
As always, we want you to have access to valuable information and to take advantage of all the financial tools available for making smart investment decisions. This time, we’ve asked one of our mortgage specialists, Joe Johnson, to provide some insightful information on house hacking. We hope you find it helpful.
What is House Hacking?
House hacking (AKA owner-occupied investing) is a real estate investment strategy where you purchase a multifamily property. You will be living in one of the units and renting out the others so that the tenants pay for your mortgage. It’s strategy design to help you as a homeowner achieve any combination of multiple goals like:
- Decreasing out of pocket costs for housing
- Building equity and starting a hands-on investment portfolio
- Or offering multi-generational living for your aging parents or adult children.
Financial Programs Challenges & Limitations
For the longest time, homebuyers interested in house hacking a multifamily property have been faced with limited realistic financing options: take out an FHA loan with 3.5% down, qualify for Freddie Mac’s ‘HomePossible’ multifamily program with 5% down, or pony up at least 25% down for a standard conventional mortgage on 3-4 properties.
All of the above-mentioned options are good in their own right but each comes with their own challenges:
- FHA loans come with both upfront and annual mortgage insurance that almost always exceed the cost of private mortgage insurance for conventional loans. To make matters more challenging, you’re only allowed to have one FHA mortgage at a time (with rare exceptions) so that rules out any opportunity for fledgling investors looking to build on their first house hack.
- Freddie Mac’s ‘HomePossible’ offering for multifamily homes has been a great option for certain borrowers but there are hard and fast income limits that exclude many borrowers. Utilizing a conventional loan with 25% down is a cost prohibitive option for many borrowers, especially those who are buying their first home without significant savings or assistance from family.
New Opportunities For House Hackers
With the release of a single memo in fall of 2023, the government sponsored mortgage association changed the game for house hackers. Gone are the days of pinching pennies to come up with a 25% down payment and FHA restrictions on owned properties because Fannie Mae now allows 5% down payments on any owner-occupied multifamily purchases – the same offering as Freddie Mac’s ‘HomePossible’ program without the income restrictions. This means that fledgling investors willing to house hack their way to their real estate dreams can stack properties with 5% down payments as long as they’re willing to live in each home for one year.
With the barrier to entry lowered significantly, an influx of owner-occupied investors should certainly be expected. Whether the goal is to build wealth, decrease housing costs, access multi-generational living with a semblance of privacy, or some combination of the above, the doors of possibility have opened.
Getting Started With Your House Hacking Strategy
Starting the journey to house hack a multifamily property is very similar to the process for buying a single-family home, just with a few more things to consider.
- You will need to find a qualified lender to get pre-approved and create a plan based on your financial goals.
- Work with a savvy real estate agent that can help you navigate the search and purchase process. There are unique factors to consider in the multifamily home search such as estimated rent for any units that will not be owner-occupied, how you’ll secure tenants, and what deferred maintenance exists in the units.
Working with a real estate team that is experienced with multifamily properties is crucial so they can educate you about the nuances of the process and guide you towards success.
We hope that you find this information useful. You can subscribe to our LinkedIn newsletter for valuable real estate information.
The House Hacking Investment Strategy
As always, we want you to have access to valuable information and to take advantage of all the financial tools available for making smart investment decisions. This time, we’ve asked one of our mortgage specialists, Joe Johnson, to provide some insightful information on house hacking. We hope you find it helpful.
What is House Hacking?
House hacking (AKA owner-occupied investing) is a real estate investment strategy where you purchase a multifamily property. You will be living in one of the units and renting out the others so that the tenants pay for your mortgage. It’s strategy design to help you as a homeowner achieve any combination of multiple goals like:
- Decreasing out of pocket costs for housing
- Building equity and starting a hands-on investment portfolio
- Or offering multi-generational living for your aging parents or adult children.
Financial Programs Challenges & Limitations
For the longest time, homebuyers interested in house hacking a multifamily property have been faced with limited realistic financing options: take out an FHA loan with 3.5% down, qualify for Freddie Mac’s ‘HomePossible’ multifamily program with 5% down, or pony up at least 25% down for a standard conventional mortgage on 3-4 properties.
All of the above-mentioned options are good in their own right but each comes with their own challenges:
- FHA loans come with both upfront and annual mortgage insurance that almost always exceed the cost of private mortgage insurance for conventional loans. To make matters more challenging, you’re only allowed to have one FHA mortgage at a time (with rare exceptions) so that rules out any opportunity for fledgling investors looking to build on their first house hack.
- Freddie Mac’s ‘HomePossible’ offering for multifamily homes has been a great option for certain borrowers but there are hard and fast income limits that exclude many borrowers. Utilizing a conventional loan with 25% down is a cost prohibitive option for many borrowers, especially those who are buying their first home without significant savings or assistance from family.
New Opportunities For House Hackers
With the release of a single memo in fall of 2023, the government sponsored mortgage association changed the game for house hackers. Gone are the days of pinching pennies to come up with a 25% down payment and FHA restrictions on owned properties because Fannie Mae now allows 5% down payments on any owner-occupied multifamily purchases – the same offering as Freddie Mac’s ‘HomePossible’ program without the income restrictions. This means that fledgling investors willing to house hack their way to their real estate dreams can stack properties with 5% down payments as long as they’re willing to live in each home for one year.
With the barrier to entry lowered significantly, an influx of owner-occupied investors should certainly be expected. Whether the goal is to build wealth, decrease housing costs, access multi-generational living with a semblance of privacy, or some combination of the above, the doors of possibility have opened.
Getting Started With Your House Hacking Strategy
Starting the journey to house hack a multifamily property is very similar to the process for buying a single-family home, just with a few more things to consider.
- You will need to find a qualified lender to get pre-approved and create a plan based on your financial goals.
- Work with a savvy real estate agent that can help you navigate the search and purchase process. There are unique factors to consider in the multifamily home search such as estimated rent for any units that will not be owner-occupied, how you’ll secure tenants, and what deferred maintenance exists in the units.
Working with a real estate team that is experienced with multifamily properties is crucial so they can educate you about the nuances of the process and guide you towards success.
We hope that you find this information useful. You can subscribe to our LinkedIn newsletter for valuable real estate information.
