How to Buy a Quadraplex with FHA Loan

If you are a young entrepreneur, you might love the idea of owning a four unit, quadraplex and living in one side.  If you are going to live in one unit, FHA allows you to rent the other 3 units, and make a minimum down payment.  The loan amounts vary per county in NC, but it is possible to buy a Quadraplex with FHA Loan financing.  READ:  You might be able to do this with as little as 3.5% down payment!

How to Buy a Quadraplex with FHA Loan Financing

There are some restrictions, meaning not all of the rents collected will be counted to offset the debt in your debt to income ratios.  Currently, you will need to take the gross rents to be collected on the 3 rental units, and multiply that by 75%.  If your total mortgage payment for the 4 units will be more than the 75% gross rents, then we can’t count any of the rent for qualification purposes.

Can you do that? Meaning is it actually possible to make these tight numbers work?  Yes, we’ve done several of them this year in Raleigh and Wilmington.

A Quadraplex is very different than having spare rooms that you rent out.  This is not just a basement with a kitchenette.  A true 4 unit property contains legally separate units. County records should show that the property is a multi-unit.

Each unit should have a separate entrance, kitchen, bathrooms, and utility meters. As a rule of thumb, each unit should have the same amenities as a standard single family home.

I’m going to keep going over the number parts of this several times, I realize I’m being redundant in talking about how to buy a Quadraplex with FHA Loan financing, but there are some “tricks” that almost derailed one deal this year, so I want share them.

Appraiser Valued Rents

For qualifying purposes, FHA allows us to give you credit for 75% of the rents collected from the other 3 units.

So let’s say you are buying a Quadraplex that has been collecting $1200 a month rent on one unit, $1150 a month on another unit and $1250 on the third.  You might think that you are basing the qualifying income from rents on 75% of $3600 (or 1200+1150+1250).  IF the appraiser agrees that these are fair market rents, then you would be correct.

But let’s say the appraiser feels the actual rents for that area are $1000.  Even though you have a proven rental history that is higher, and you have rental agreements that are higher – as the lender… we are bound, in this case to 75% of $3000. 

In this situation, your total mortgage payment, P&I, taxes, Homeowners Insurance and HOI fees can not exceed $2250 a month.  If your total payment is $2265, then I can’t use any of the $3000 in collectible rent to qualify you for the mortgage.  Now THAT can be a deal breaker…

Reserve Payments Required

If you are buying a duplex, and living in one side, FHA does not require any additional funds beyond those needed for closing.  However, when you are purchasing a Triplex or Quadraplex, FHA requires 3 months of Reserves left after closing.  What does that mean?

FHA wants us to verify that after closing you will have at least 3 full monthly payments left over in liquid assets after closing.  So 3 months of Principal and Interest, Taxes, Homeowners Insurance, Mortgage Insurance and any Homeowner Association Fees.  This way, if you have a renter move out, they know you have the cash reserves to keep making your mortgage payment.

Conventional Financing Versus Quadraplex with FHA Loan Financing

Conventional mortgages for multifamily loans typically have a range of possible loan amounts that start at $100,000 and follow the Fannie Mae guidelines for maximum loan limits. These limits for 2018 have gone up, and are higher for “High Cost” areas in the Country, like Hawaii.  We only have a small High Cost area in NC, near Duck.  If you are interested in a Quadraplex in this part of the state, call us, and we will go over your options.  Otherwise these are the current Conventional Multifamily loan limits for NC:

• 2-unit property: $580,150
• 3- unit property: $701,250
• 4-unit property: $871,450

The minimum down payment for a 4 Unit Home using a Conventional Mortgage is 20%. So, if you are purchasing a $500,000 quadraplex, you would need at least $100,000 for your down payment.  For a Quadraplex with FHA Loan Financing, the requirement is 3.5% down payment so with a $500,000 purchase, you would only need $17,500.

The maximum FHA loan amount for Charlotte with a 4 family residence in 2018 is $566,425.  The is the same maximum loan to buy a Quadraplex with FHA Loan financing for Asheville, Greensboro, Hickory and Winston Salem. 

$612,600 is the maximum loan amount in Wake County to buy a Quadraplex with FHA Loan Financing for 2018.  Maximum Loan limits vary by County for FHA, and so the maximum in Durham County is now $729,800.  If you are interested in learning more about the FHA loan limits for a particular area in NC, please call us at 919 649 5058.

Looking for a 4 Unit Home in North Carolina?  This type of housing is known as a Quadraplex.  Remember the FHA Loan Limits for all NC Counties in 2018 just went up!  If you want to buy a Quadraplex with FHA Loan Financing, Call Steve and Eleanor Thorne 919 649 5058.  We do TONS of FHA loans in Charlotte NC and we’d love to help you!  We also have some of Today’s Best Mortgage Rates!