100% Financing for First-Time Home Buyers is HERE

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If you’re a first-time home buyer, now may be one of the best times to get a loan in recent history, according to mortgage advisor Jeff Welgan. With new no-money-down mortgages coming out specifically to help first-time home buyers finally get into a property, you can now buy a house for no money out of pocket, with your entire purchase price and closing costs covered. These 100% financeable loans aren’t a secret, so why don’t most first-time home buyers know about them?

In this BiggerNews, we’re diving deep into the best first-time home buyer loans available in 2024, how to pick up your first property for NO MONEY out of pocket, and low-money-down multifamily deals any brand new investor can start buying today. With affordability at nearly forty-year lows, most Americans struggle to save up a down payment, even if they have enough income to qualify for a home loan. This is where 100% financeable loans come in, making it easier than ever to buy your first home.

So, who can get approved for these first-time home buyer mortgages, where do you find them, and how do they work? Jeff goes through these programs on the federal and state levels, showing first-time home buyers where to find them, which loans to avoid, and whether or not they can use these loans to buy their next property.

Dave:
Funding and finding quality deals are the two biggest hurdles that investors have to jump through. And this is true for all investors, but it can be particularly challenging if you’re a first time investor or a first time home buyer trying to get your first deal. So today we’re actually gonna dive into this and cover the funding piece for you and how you may actually have more options to fund your deals than you think. Hey everyone, my name is Dave Meyer, and today we have a bigger news episode for you. We’re gonna be bringing on a lender named Jeff Welgan, who specializes in working with investors and specifically first time investors. We’re gonna be covering and discussing with Jeff how first time home buyer programs can help you get assistance with your down payment. And actually it means that you can have less cash out of pocket for your first deal. And we’re also gonna discuss how to navigate market conditions as a new investor. Super excited to bring on Jeff, but before we do, I just wanted to thank our sponsor. Our bigger news episode today is brought to you by the rent app, the free and easy way to collect rent. If you wanna learn more, just go to rent.app/landlord. All right, let’s bring on Jeff. Jeff, welcome. Welcome to the BiggerPockets Podcast. Thanks for being here.

Jeff:
Yeah, thank you for having me. Dave.

Dave:
Can you start by just telling us a little bit about the most common hurdles that home buyers or first time investors are facing right now?

Jeff:
I’d say the biggest hurdle is the obvious, the lack of inventory and the high interest rates that we’re all contending with right now. And I think those are the biggest issues that we’re all experiencing. That’s keeping a lot of people stuck on the sidelines at the moment, uh, with this shift that we’ve seen over the last couple of years. I mean, you think back, you know, prior to March of 2022, we had, you know, hundreds of thousands of pre-approved buyers that could qualify at the, you know, three to 4% range that, you know, with rates going up faster than they ever have in history can, are stuck on the sidelines and, you know, can’t qualify at the current moment.

Dave:
And just for reference. So there is a way that we actually measure how affordable it is to buy a home. And right now that index, the affordability index is lowest. It’s been in about 40 years. So if you have been feeling that it’s difficult to get financing or to land your next deal or your first home, you’re not alone, uh, by most objective measures. It is really difficult. But luckily we have Jeff on here today to talk about some of the ways that we can maybe make it a little bit easier to afford your first purchase. So can you just tell us, Jeff, like what a first time home buyer program is, sort of in the broadest sense?

Jeff:
Absolutely. Yeah. And I just wanna build off what you just said briefly. You know, the barrier to entry seems like it’s a mile high at this point, given the things that we’re talking about. And it’s important to understand the transition that we’ve gone over through, over the last couple of years. Um, you know, I’ve been doing this for 20 years now and we went through a very similar period coming outta the Clinton administration through the mid to late two thousands before the Great Recession, where really the pendulum has swung back the other way. We went through a very, you know, period of 10 to 15 years of cheap money. And now basically what this administration has done is trying to, you know, as prioritize and emphasize first time home buyers and low to moderate income families and trying to get as many renters into homes as possible.
So what’s occurred here over the last couple of years is we’ve seen more down payment assistance money coming out of federal and state governments right now to try to incentivize, you know, first time home buyers and families to get into homes to experience the American dream. And in turn, they’ve tried to slow down real estate investors a bit by making investment financing more expensive, which I’ve heard you talking about plenty of times here on your <laugh> on the podcast. But, uh, you know, it’s been an interesting dynamic here, an interesting shift. And so with these down payment assistance programs, the important part too that I want all investors to know is that it has not been this easy in 15 years to buy your first house with little to no money down. Most of these programs range anywhere from a hundred percent financing all the way up to 105% financing, depending on the state.
We have a nationwide 1 0 1 0.5 program that’s a hundred percent financing, plus one and a half percent of the closing costs. And then some states will allow us to go up to 1 0 3, 1 0 4, 1 0 5. Like for instance, I’m out in California and we can do up to 105% financing in a lot of cases. So there is more money in this space right now than there has been in a very long time. The dilemma, obviously has been the lack of inventory. So that’s been the tricky part. But the important part for first time home buyers that are trying to buy a home or thinking about it, you know, the, the earlier you can start having these conversations and figure out what options are available to you, the better.

Dave:
And Jeff, when you say first time home buyer, would these programs also work for an investor who wanted to do an owner occupied option, like a house hack?

Jeff:
That’s a great question. Yeah. All of these down payment assistance programs are for primary residences only. And so with the first time home buyer rule, it doesn’t mean that you can’t have owned a home ever in the past. It just means that you cannot have owned a home in the last three years. So you can’t have been on title or owned a home in the past three years for most of these programs. But there are that nation, there’s that nationwide program that I mentioned that goes up to the 1 0 1 0.5 that has really been a game changer for real estate investors because it allows for up to two units and you don’t have, there’s no first time home buyer requirements. So you can currently own a home and you can do down payment assistance to buy your next property.

Dave:
Alright, that, that’s really good to know. And so that specific loan, it sounds like, you know, works for two units. Are there some that work up to four units? Like you could do any sort of residential?

Jeff:
Not on the down payment assistance side, but there is the 5% down unit option that just opened back up here about three or four months ago with Fannie Mae. That’s been a game changer for real estate investors because with this program specifically, it’s allowing all of us, whether you’ve owned a home or not in the past, to buy units, you know, up to four units with 5% down. And, um, there’s no, um, restrictions like the FHA loan on the FHA loan at the 3.5% down option that we’ve all heard of with that program. There’s what’s called a self-sufficiency test where we have to actually look at that, you know, the property, we have to make sure that the rent covers the all in mo mortgage payment, the principal interest, taxes, and insurance.

Dave:
All right. So Jeff, it sounds like there’s a couple different programs. Some are federal and some are state, and these are for specifically for down payment assistance for owner occupied properties. So let’s just say if, if you’re an investor, you are interested in taking advantage of one of these things, like where do you go to learn about what offerings your state might have or what federal programs you might qualify for?

Jeff:
That’s a great question. So every state at this point has their own housing finance agency. So you can just go on and Google, you know, your current state that you’re in. And there’s different programs for every state and what they’re working toward on a federal level as a DPA one program, which would be a federalized program that covers all 50 states. They’re not quite there yet, but it is coming and that’s what they’re working on right now. And then, uh, with the state programs, when you go on there, you’ll be able to see exactly what is being offered because there’s, again, the, like, let’s use Idaho for instance. We have a couple of branches up there. Everybody uses the down payment assistance program in Idaho. It’s a great program. They go up to 104% financing and the rates are incredible. But then you look at other states like where I am in California, there are some limitations going all the way up to the 1 0 5 and the pricing’s a little bit worse if you go all the way up to the 1 0 5 versus say, one of the lower down payment assistance programs.

Dave:
Let me just make sure I understand what you’re saying. Like 1 0 4, 1 0 5, that is the percentage of the purchase price that these programs might help with. So obviously a hundred percent would be the entire purchase price. Mm-Hmm. <affirmative>, uh, if you’re new to real estate investing, you may not know that in addition to the purchase price, there are costs that are associated with transacting on real estate. So these are typically called closing costs and they could be everything from, you know, getting an appraisal, getting an inspection, getting title insurance, all these different things that you need to do. So it sounds like some of these programs will go above and beyond the pro the, the purchase price to help cover closing costs. Is that right?

Jeff:
Correct. Yeah. I mean, you hit the nail on the head and, you know, with this, so for instance, on the 1 0 1 0.5 program that I mentioned, that’s nationwide. So a hundred percent of the, the, the purchase price and then one and a half percent of the closing costs. With the 1 0 5 program that we have here in California, it’s a hundred percent plus 5% of the costs. So you’ll need to come in with a little bit more money on that nationwide program than you would on a state specific program that may go a little bit higher than the, uh, nationwide option.

Dave:
Okay. And then when you say 105, that doesn’t mean they’re paying 105%, that’s a price. So like what do they, what are you putting down? Are they basically like covering you getting a traditional loan and then the state agency is giving you the down payment? Or how does it work logistically?

Jeff:
It’s a 96.5% FHA loan. So three and half percent down. It’s the same type of program, but then the down payment and the closing cost assistance is covered through the down payment assistance.

Dave:
Okay. Got it. And how complicated is to apply for these things? Like is this adding just layers and layers of bureaucracy? Not

Jeff:
At all. No. I mean, they’re very easy. They’re really trying to simplify this and make this as easy as possible because that is the, the big push again, is to get as many people into homes as possible. And they’re trying to make the barrier to entry as low as possible right now. So it is as easy as it’s going to be to get into your first house, um, for the foreseeable future, with the exception obviously of the limited inventory out there. That’s the another conversation. But, uh, the money’s available right now. And again, the best advice I have is start the conversation early. ’cause the earlier you can put a plan in place, you know, the more prepared you’re gonna be. I mean, I can’t tell you how many clients I’ve had over the years that have come to me. Oh, I found a property and, you know, I want to put it in an offer.
And come to find out it was gonna take, you know, three to six months worth of planning to get them into a position where they could qualify for that house. And it could be a little disheartening. I mean, it’s, you know, it’s frustrating. This is a, it’s not an easy process. I mean, it takes a lot of persistence and, um, you know, the clients that are getting into contract are the ones that are able to stick with it, that, you know, aren’t getting overly emotionally invested in each additional property. They’re truly treating this like a real estate investor would, you know, if the numbers work, if you like the house, um, great, let’s put in an offer on it. If it doesn’t work out, move on to the next one. ’cause there’s plenty of other opportunities out there. And very few people end up with their first property or two, you know, and especially in this market, I mean, it’s taking 5, 10, 15 offers before you know it’s finally working out.

Dave:
Alright. So even though it is a challenging time to get into real estate, there is a ton of assistance out there for first time home buyers. But if you are going to use one of these options, the question becomes how can you get your offer accepted and what are Jeff’s strategies for dealing with higher interest rates? We’ll get into all of that right after the break. Welcome back investors. I’m here with lender Jeff Welgan, walking through how first time home buyers can get into the housing market. Let’s jump back in. You mentioned something, Jeff, that I, I wanna follow up on is that at least during the most competitive frenzied parts of the pandemic, FHA loans were not getting accepted very frequently. Um, and just so everyone knows, like if you’re a seller, uh, you get presented with all these different offers if there’s multiple bids on, on a, on a property, and a lot of times, uh, they, you know, the seller ops with for a non FHA loan. So can you first just explain why a seller might not want an FHA loan? And then we can talk about how to mitigate that?

Jeff:
Yeah, no, that’s a great question. If there’s property issues, you know, when you look at an FHA appraisal, those appraisers are gonna do a little bit deeper of a dive than a conventional appraisal. And they’re required by hud, which oversees the Department of Housing and Urban Development that oversees all FHA loans. Uh, they require that, you know, they point out any issues potentially in the house. And so, uh, listing agents that are aware of potential problems, you know, with the property that are experienced, understand that if they have an FHA offer and they know that there’s potential problems that could come up with the appraisal, they’re gonna be more inclined to explain this obviously to their, their seller and point them in the direction of one of the conventional offers.

Dave:
And so has that been a challenge in adoption of these down payment assistance programs?

Jeff:
It depends on the region. So, you know, you look at areas like Idaho and the Midwest, it’s very easy to get into contract with these properties because it’s the norm. And, you know, everybody that’s selling properties understands that this is the target demographic. Mm-Hmm. <affirmative>, when you get closer out to the coast or the higher purchase price markets, it’s harder and harder to get into and in some markets near impossible to utilize some of these down payment assistance programs.

Dave:
That’s super interesting. Yeah, I, I was just curious because it’s, there’s so many complex layers to this Mm-Hmm. <affirmative>. But like, obviously this program is designed to help people, but at the end of the day it does come down to the sellers accepting it. But I’m glad to hear that, you know, especially in areas where it’s common that they are getting accepted and, you know, not everything, it’s not, it’s still competitive, but, uh mm-Hmm, <affirmative>, at least my feel is that’s not as competitive. It was during the, the pandemic. And so you do have a better chance of getting an FHA loan, uh, accepted even if there are multiple bids.

Jeff:
Yeah, absolutely. And it’s, um, I think as rates come down, I mean, what you were saying as far as, you know, things being competitive, I mean, every market’s different. I mean, like I said, we’re everywhere except for New York. So there’s some markets that really haven’t changed much since rates went up and the higher price markets. And then there’s other markets that have really cooled off. And so depending on that market, there’s different strategies that we can utilize. And so we can get into a little more of those details if you’d like, I can talk to you about some of the rate strategies that we’re doing to beat some of these higher rates, if that’s helpful, Dave. So yeah,

Dave:
I, I want to hear some rate strategies.

Jeff:
Okay, sounds good. Uh, the, so one of the things that we can do with all these down payment assistance programs is building up to a 6% seller credit. And with this 6% seller credit, you can do a straight rate buy down. You can, um, you know, pay for all the clo you know, any additional closing costs. So what we typically try to do is build in as much of a credit as we can at the offer. And then you can also negotiate an additional credit for repairs that we use as a seller credit. So the total credit can be up to 6% of the purchase price. And this can mean the difference between qualifying and not qualifying or affording the payment for the long term or not. I mean, we’re all waiting for rates to come down and we’re all hoping that they come down soon as, you know, as of today, this is the, you know, April 15th, 2024, we just had a retail sales number came, come out today that is pushing rates up even further.
And we had a bad week last week. So my feeling is, is that the Fed is gonna keep rates higher for longer. So I would prepare for these elevated rates for the foreseeable future. I mean, this could obviously change on a dime if something comes outta left field. But for right now, I mean, be given where we are with this election year and everything that’s going on, my feeling is we’re gonna see rates somewhere in this level that range maybe high sixes to mid sevens. And so going into a property hoping that rates are gonna come down anytime soon, especially as a first time home buyer, the last thing you wanna do is get overextended. Because the way we do our qualification on our side, for instance, we can use all of your income if you’re W2, we can go off of your gross income. So what you may qualify for could be significantly more than what fits your budget. So the important part is, is that, you know, you figure out what is going to be affordable for you here for the long, you know, the long term and plan a few years out in case we do see rates stay higher for a lot longer than we anticipate. And you’re not getting yourself into a position where, um, you know, you’re stretching your budget every single month. And

Dave:
Well, I’m, I’m glad you said that Jeff, ’cause I couldn’t agree more. I think this idea that you should buy something, whether it’s an investment or a first, your, your home and assume that rates are gonna come down is a risky proposition. And absolutely, I agree that hopefully they will come down. But as we’ve seen throughout 2024, it’s a lot more volatile and it’s a lot more complicated and a lot less predictable, let’s be honest, than a lot of us want it to be. And so you need to make sure that you are buying something based on the facts on the ground. You don’t know what’s gonna happen in the future. All you know, is what you can afford today. Uh, and that’s, that’s really what’s important. So I I’m glad you said that, Jeff. I appreciate it.

Jeff:
That’s great advice, Dave. Now

Dave:
What, what about, what about rate buydown? So this is, this is a question I get a lot, um, is like one, are sellers buying down rates, um, anymore and two, if not, like, should you be buying points on a mortgage right now to try and reduce your rate? So

Jeff:
That’s a great question. It depends on your strategy and what your, what your goals are. Ultimately in a normal market, if we were having this conversation five years ago, I mean, I would say, you know, unless you’re planning on buying the pro and holding the property long term and you never wanna refinance again, you know, paying down points doesn’t make a lot of sense because when you look at what occurred, let’s say from 2015 through 2019, rates moved up toward the end of the 2010s and to about five point a half percent. And then when rates started moving down, when we hit, you know, 2020, we did the refinance strategy where we turned around and refinance our clients’ loans on no closing cost loans every time rates come down, um, enough to where they’re saving about a hundred to $150 a month. And so our clients were leaving or come, you know, leaving with the same loan amount that they came in with and we weren’t tacking on closing costs.
And we do that by raising the rate an eight or so just to cover all the costs. So this way, you know, you take advantage of the lower rates without having to pay the, the refinance fees every single time. So with your original question, as far as paying for rate buy downs right now, we’re in an interesting market rate at the moment because of the fact that, you know, rates went up faster than they ever have in history and the entire secondary market knows that we have a refinance market coming at some point in the future. So as an industry, we’re just not getting the spread on the back end of the loan to where we can can apply that to either a no point or a no closing cost loan. I mean, you haven’t heard of a no closing cost loan since February of 2022.
’cause that side has just completely evaporated. Once we come out of this financial cycle, we’re gonna see this normalize, we’ll see no point no cost loans again. So for now, for clients that are trying to get into homes, whether it’s a first time home buyer or an investor that’s trying to buy a property, there are very little or very few no point options out there. And so for instance, you know, for our clients that are buying short-term rentals, and we’re using the 10 and 15% down options, we’re having to build in, in a lot of cases, larger seller credits that the sellers are paying for in order to help from a cash flow standpoint. So there are different, um, depending on the strategy, there’s different approaches that we utilize for this. But going back to the down payment assistance program specifically, it really just comes down to whether or not the client’s going to, you know, each individual in individual client is going to qualify without it first off.
And then secondly, if they don’t qualify, then we have to figure out, okay, how much of a credit do we need to build in? Because if we can get, you know, a three to 6% seller credit, it may mean the difference between a rate at, you know, pushing 8% now versus a rate in the, you know, high sixes where it could be not qualifying versus qualifying. And so we, we look at this on an individualized basis and try to provide, um, advice, you know, the best possible advice that we can for each individual client’s, uh, situation. It’s really on a case by case.

Dave:
Yeah, it’s, I know it’s, it’s sort of frustrating for people who are listening. You’re like, oh, everything’s, well, it depends, but that is true, especially when it’s something as complicated as getting a mortgage, how long you’re gonna hold it, the type of property, the macroeconomic environment. So there’s a lot going on there. But I do just wanna reinforce something that Jeff said here because it, it’s super important. Uh, I had asked if buying down points is worth it, and just so people know what that means, when you are offered a mortgage, sometimes you have this ability to basically pay some more money upfront to lower your interest rate. And during certain times that can be pretty beneficial. Uh, if you’re going into what you would think is a increasing interest rate environment that might be, uh, beneficial, typically the longer you intend to hold the property, the more bang for your buck you get on paying that upfront cost.
But as Jeff said, like whether it happens in six months or two years, like pretty much everyone is expecting that we’re gonna go into a declining mortgage rate environment sometime that is significant enough that makes it worthwhile to refinance. So maybe you’re getting a mortgage rate now at six point a half or 7%, maybe in a year or two you can refinance, let’s say at six or hopefully at five and a half. And that basically negates the value of buying down your points, right? Because they’re both kind like paying points to buy down your mortgage rate when you’re just going to refinance in a year or two is basically not worth it. Is that kind of like the calculus there, Jeff?

Jeff:
I mean, you hit the nail on the head with it. The dilemma has been is that most loans be because of what I mentioned, have some kind of a cost to it right now, right? Unless, yeah, unless you’re putting, you know, 20, 25% down. So when we look at any of these options, whether it’s a down payment assistance or a 5% down units, any of the lower down payment options right now are gonna have some kind of a cost. Whether it’s, you know, a quarter to a half a point or all the way up to multiple points, let’s say on the, you know, 10% down vacation home loan that is improving. It’s gotten a lot better than it was about a year or so ago. We are seeing no point options, but a lot in some cases. But the spread, you know, the amount that we need to raise the rate in order to get to those no point options, um, a lot of times it’s just not worth it.
So maybe like you may get a, you know, let’s say a three eights or half a point better to rate by paying a half a point where in a normal market that’s only gonna get you about a quar, you know, an eighth to a quarter. So it’s just been, it’s been interesting watching the evolution over the last, you know, two plus years as we’re slowly knocking on the door of coming out of this financial cycle. And, you know, every time we get close, it seems like we, uh, like we did today and last week, we’re two steps forward and three steps back. But, uh, we are getting close.

Dave:
It really does feel that way. Yeah. It’s like you just start inching forward and then a week later you’re just back where you were. Yeah. Okay. So this is all great advice on how to navigate the current landscape. We do have to take one more quick break though, but when we come back, we’ll get into specific advice on how investors can use these programs. Whether you’re playing to house hack, build an ADU or get into small multifamily. And while we’re away, if you wanna get connected to an investor friendly lender, head over to biggerpockets.com/lender finder and get match for free. Stick with us. Welcome back to the BiggerPockets Real Estate podcast. I’m here with Jeff Welgan talking about loan options for first time home buyers. Right before the break we got Jeff’s insights on how to deal with interest rates. Let’s pick up where we left off. So Jeff, I, I get that, you know, it’s, it’s frustrating that that rates are staying a bit higher, but in, in some respects, does it actually just make it a little bit easier because there’s not as much to think about in terms of buying down rates and different options?

Jeff:
Yeah, I mean, it’s a great question. I mean, there are some considerations because as we were talking about with that, you know, up to 6% seller credit, we can also do what’s called a two one buydown, where, you know, with the 6% seller credit, it can be utilized for a permanent rate buydown, where we can buy the rate down depending on, you know, where the market is or there’s a two one buydown strategy where we can actually build it, utilize that seller credit. It’s usually only about a 2% seller credit to help buy down the rate. And it’s a temporary buydown. So basically what’s happening is, is the seller is prepaying the interest for the, a couple of years. And so what, let’s just say the note rate seven point a half percent the first year, you’d start with a payment based off of five point a half. Second year goes up to six point a half, third year goes up to the note rate of seven point half. And just like the permanent rate buydown strategy, this is just a buy us time until rates come down Mm-hmm. <affirmative> and help alleviate these higher rates. So I mean it’s, you know, the, the payment factor, the payment shock, it really put our clients in a position where they can afford the payment for the foreseeable future while we’re waiting for rates to come back down.

Dave:
Very, very sound advice. So Jeff, earlier you mentioned most of the down payment assistance programs were either limited to single unit or up to two unit properties. From what I understand, there are some options that would get you maybe a triplex or a quadplex, basically some of the larger small multifamily that is a mouthful, a large small multifamily <laugh>, but you know what I mean, right. Either a triplex or a quadplex. Like what options are available for that?

Jeff:
Yeah, there’s limited, you can go up to a hundred percent with some of these programs and it, you know, state by state. So there are some limited programs coming out in that space. Um, but yeah, most of the three and four units are requiring three and a half to 5% down at the moment.

Dave:
Oh, okay. And so what are those programs? Those are state, not federal? Well,

Jeff:
So the three and a half and the five. So those obviously are the FHA and the Fannie Mae program. The other one is the, we do have a federal 100% program. Um, and then there are state programs as well.

Dave:
Okay. Got it. And one other question I wanted to ask you, Jeff, is I read a couple months ago, I think that now lenders were gonna be able to consider the income from an accessory dwelling unit, also known as an ADU on purchases. Is that correct? And if so, can you tell us a little more about it?

Jeff:
Yeah, as long as it’s a legal ADU that has changed. So yeah, we can use the rent on those now. We can’t do any kind of room rents, so I know, you know, everybody that does the, uh, primary residence hack, you know, we can’t use the rent when you’re renting rooms because it’s considered border rent. But if you do have, you know, a legal two or um, an illegal ADU, we can use that rent to help you qualify. Okay.

Dave:
That, that, this is really important. ’cause two, two things you just said that people should take note of is a lot of times on this podcast when we talk about house hacking, we offer two options. One is you buy a single family home, live in one bedroom, and then rent out the other bedrooms, which is still a great strategy, but based on what Jeff just said, that is not gonna qualify for some of these purchase. You can’t use that income, I should say, to, uh, increase your debt to income ratio and to qualify for more. If you still qualify it, you could probably still do it. So that’s just important to know. But I think this a DU program is something that most investors should not sleep on. This is really important just for historical context, and correct me if I’m wrong, Jeff, but I think historically, if you bought a house that has, let’s say, an apartment above the garage that’s known as an accessory dwelling unit or an ADU, and previously, like if you were renting out that ADU lenders weren’t really allowed to look at the income from that ADU and consider it as part of your income when they’re evaluating how much you qualify for.
But that has changed now. And this is also happening at a time where this, there’s a trend nationwide where, uh, something called upzoning is happening where a lot of municipalities are allowing single family, homeowners or investors to build accessory dwelling units. So that means that over the next few years, there’s probably gonna be an increase in the number of properties that are single family homes within accessory dwelling units. And at the same time, you’re gonna be able to use that income to qualify for more. Mm-Hmm, <affirmative>, this could be a really good powerful strategy for house hacking for first time investors, buy the single family home, either live in the ADU and rent out the main house or live in the main house and rent out the ADU. That has gotten a lot easier over the last couple of months.

Jeff:
It definitely has. We were at the leading edge, um, here in California on this, where the big push is to build as many ADUs as as possible right now because this is one of the many, um, solutions that, you know, the federal government has come up with and our state government has come up with to solve this, um, housing shortage that we’re currently seeing. So yeah, I mean, it’s, it is getting easier and easier, um, to build ADUs. For instance, we have a program called the Fannie Mae Homestyle that doesn’t get a lot of traction. That’s not the FHA 2 0 3 K, I just wanna get that out there. This is called the Fannie Mae Homestyle that allows you to do ADU additions on primaries, second homes and investments. So something to look into. Um, it’s a, the big difference between this and the FHA 2 0 3 K is FHA 2 0 3 K has gotten a very bad reputation because there’s a HUD advisor involved throughout the process, which just makes it a very slow process. It’s tough to get these into contract.

Dave:
And Jeff, sorry to interrupt you. Can you just explain what the 2 0 3 K is? Oh,

Jeff:
Absolutely. Yeah. So the FHA 2 0 3 K, it’s a renovation option. It’s an FHA loan that has a renovation feature to it. And basically you, there’s some limitations, light to moderate rehab only, but you can do pool additions, ADUs, um, you know, kitchen remodels, bathroom remodels, anything on the interior. You just can’t, um, you know, start moving walls around or build a, um, second story. You can’t do one wall construction, you know, where they do renovations, where they leave one wall up to keep it a Reno project and not a ground up. Uh, that is all heavy rehab, which we cannot do with the FHA 2 0 3 K or the Fannie Mae Homestyle. But the big difference is the FHA 2 0 3 K has gotten a very bad reputation over the years because it is a long drawn out process in most cases because there’s a HUD advisor involved.
And so we have a hard time getting these into contract because listing agents see those offers and understand that this is gonna be a long process. So the workaround on this is, is the Fannie Mae Homestyle that doesn’t get a lot of traction. So I’ve been trying to get the word out there on this, especially for this ADU space, because this is a great program. There’s no, um, HUD advisor involved, uh, talk to whoever you’re working with on the lending side, be, see if they offer it. We have a, uh, in-house renovation team that actually works with your contractors. So it makes it very easy and, uh, it’s a much smoother process than the 2 0 3 K. And when we get out in front of this and talk to the listing agent when you’re submitting offers and explain that this is not the 2 0 3 K, it’s a totally different experience. It, it breaks down that wall and it’s much easier to get these, uh, the offers accepted on these.

Dave:
Awesome. That, that is a great explanation. It sounds like a really cool program. I, I really think if you’re, if you’re starting out, this is a really strong option, um, that is just sort of like going with what the market is giving you. You know, we talk about that a lot, uh, on the show is like, take what the market is giving you and ADUs is something that, you know, governments are prioritizing, lenders are making it easier. It’s a version of house hacking, which is always a really good, relatively safe, low risk way to get into investing. So I, I highly recommend checking that out. Jeff, thank you so much for joining us. This was a really informative show. I think it’s gonna be a big help to all of our first time investors and homeowners out there. And just for everyone, if you have already purchased your first home or already thinking about scaling, good for you. Jeff is actually gonna be back next week to talk about, uh, options and how to consider different types of loans if you’re trying to scale your portfolio. So make sure to check out bigger news next week to hear from Jeff again. And if you wanna learn more about Jeff or connect with him, we’ll put his contact information in the show notes.

 

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