Important Housing Hacking Reminders
House hacking, as most readers know, is the process of buying a home as an “owner-occupant” but then using rental income from that same property to: (1) help pay off the mortgage; and (2) help qualify for a larger purchase – in most cases.
Agents have been asking about guidelines recently, so I thought I’d share some important reminders.
I. Single-Family Residence (SFR) House Hacking
Buyers can house hack SFRs – by renting out rooms inside the home or by renting out an accessory dwelling unit.
But – the drawback to this is that the potential rental income often cannot be used to help qualify.
II. Single-Family Residences With ADUs (In-Law Units).
If an SFR has a LEGAL ADU, a borrower can use the rent from that ADU to help qualify. If that ADU is not legal though, buyers cannot use income from the unit to help qualify.
III. 2 to 4 Unit House Hacking
This is the most common approach to house hacking, and it works beautifully because lenders can use either the market rent or actual rent (if the unit is occupied) from the non-owner units to help borrowers qualify.
In addition, buyers get to be on-site property managers and they can use the rent to pay off their mortgages much faster than they ever could if they just bought an SFR that generated no income.
And – “owner occupant” buyers are only obligated to live in the property for one year – so they can buy a new “owner occupied” 2 to 4 unit property every year (in other words, they can “house hack” every year).
IV. FHA Vs. Fannie Mae/Freddie Mac
FHA is the best deal going for house hackers, as it allows buyers to put down as little as 3.5% for two, three or four unit properties!
Fannie Mae, however, is more restrictive, requiring far larger down payments for units (15% for two units; 25% for three and four units) – with the exception of “Home Possible.”
Home Possible is a special program for first-time buyers that allows them to buy two unit properties with as little as 5% down – BUT there are income limits (so not everyone will qualify).
Rates Up Because Of “Sell America?”
Rates shot way higher Friday – Tuesday – with some interesting implications.
- Lenders everywhere spent yesterday saying “I told you so!” to all of their borrowers waiting for rates to fall further before locking in their refis.
- Mainstream media outlets insisted rates jumped as a result of President Trump’s tariff threats (over Greenland) and that this is another example of “sell America” (where nervous investors move out of American stocks and bonds).
Analysts outside of the mainstream media, however, illuminated more likely reasons that rates jumped:
- Japan’s bond yields have been shooting through the roof, as investors are getting more and more nervous about Japan’s ability to service its debt – and demanding higher yields. And when Japan’s bond yields climb, other countries’ yields often follow – for a variety of reasons.
- The American economy continues to show signs of strength, e.g. GDP growth, industrial production, retail sales, etc. These factors usually push rates higher.
Further, as we have now seen, tariffs are not inflationary. Analysts like economist Steve Hanke believe they are a drag on the economy in fact, likely pushing rates down, and that we have not yet felt the full impact.
“Sell America” may still have been partially responsible for pushing rates up, but if that was the case, it won’t last – just like the last ten times “sell America” ostensibly pushed rates up. Remember April – when the world was coming to an end after President Trump announced his tariffs? (The world didn’t end, in case anyone didn’t get the memo, and I was one of the people who thought it might. 😊)
