Someone on X was recently bragging about buying a 4-unit property in San Francisco for $2.4 million with only 3.5% down.
This of course was made possible by the incredible increase in FHA loan limits for high-cost areas – set out below.
The gentleman on X was pointing out how there are now bargains for multi-unit properties in many markets – and FHA is a fantastic way for buyers with limited cash to “house hack” (derive income from one’s own home while living in it).
FHA financing facilitates owner-occupied financing only, but I suspect that many buyers purchasing units do not stay in the properties longer than the required one year.
I also suspect that if the people who originally established FHA financing, to help needy people finance real estate, knew that it was being used to finance $2.4 million properties, they would turn over in their graves.
But that’s a topic for another blog.
In the meantime, we’re happy to take full advantage of FHA – with its very low rates (1/2% lower than Fannie Mae); very flexible credit standards (580 credit score’s OK); and very high debt ratios (almost 57%).
NOTE: FHA has a “self sufficiency rule” for 3 to 4 units, that says the properties must cash flow with 75% of the market rent from all four units, as explained in this blog.
Reminder: FHA Loan Limits Are Much Lower in Other States like Texas
Most states unfortunately do not have “high-cost” areas like we have in CA, but FHA still has very reasonably high limits for units.
The FHA limits for most of Texas are set out below:
Here are FHA Loan limits for one of Texas’ higher costs areas too. A bit better, but not even close to Bay Area limits. But, people can still buy $1.15 million properties with only 3% down.
DSCR Loans Too – For Investors Who Don’t Want to Show Income
This is another reminder that Debt Service Coverage Ratio (DSCR) loans are the best option for investors who want to buy investment properties but are unable to show sufficient income with tax returns and paystubs.
Those investors can obtain financing solely based on the rental income from the property they want to buy. They will, however, need 20% to 25% down no matter what, depending on credit and the rent-to-debt-service ratio.
I blogged about these loans in November: DSCR Loans ONLY Use Rent To Qualify; Do NOT Need to Cash Flow; DSCR Rates Are LOW!
