08/19/2022
Housing hacking is when you live in one of the units of your investment property as your primary residence, and have renters from the other units pay off your mortgage and expenses. And since you are living in the property, you can qualify for the FHA loan which requires only a 3.5% down payment. For example, for a $400,000 duplex, your down payment would be $14,000.
House hacking with FHA loan has two parts. 1) A 2 unit property. 2) A 3+ unit property.
1) Buying a duplex with FHA loan is fairly simple. FHA loans require that you live in the property, but what you do with the other units is up to you. Most people live in one unit, and rent the other one out, and use rent from the second unit to cover most of the mortgage and expenses while building equity in the property.
2) This part is not as simple but DOABLE. If you plan on using the FHA loan to purchase a property with three or more units, you will need to pass the FHA self-sufficiency test. The self-sufficiency test states that the total rent that you receive from all the units has to be equal to or greater than the mortgage payment. If the monthly mortgage is greater than the rent you are bringing in, the property will not pass the self-sufficiency test. Secondly, the FHA appraiser will use a vacancy factor of 25%. For example, you buy 4-Plex that could bring in $6000/month in rent if all 4-units are rented out. 75% of that would be $4,500; therefore, to qualify for an FHA loan, your rental income must be at least $4,501.
