It might sound counterintuitive, but buying a bigger home than you need or even a multi-family home (like an apartment building, two- or three-flat, or a brownstone) with units carved out could help you save some cash.
By Brittany Anas | June 28, 2018
If you plan to purchase a spacious, single-family home and rent out a room or two while living in the house, you won’t be able to use that future rental income to qualify for your mortgage.
But, if you purchase a multi-family home—and one of the units in the duplex or the building is your primary residence—lenders can take projected rental income into consideration.
“It does vary a bit depending on the lender and market; sometimes lenders will need tenants to be in place with leases before they’ll count the rental income, others will accept market rental potential whether or not tenants are physically there already,” explains Kate Ziegler, an investor, entrepreneur, and a realtor with Arborview Realty in Boston.
Ziegler has personal experience with “house hacking”—a real-estate power play in which you live in one unit, and rent out others to cover your mortgage. She and her husband purchased their first home in 2013, which is a three-family building in Boston’s Jamaica Plain neighborhood. They inherited tenants in two units, and moved into the vacant unit in the three-decker.
Ziegler suggests that before you buy a multi-family home, you consider the “worst-case scenario” when it comes to covering your mortgage.
“Vacancies happen, and you need to be prepared to cover your whole mortgage for some amount of time just in case,” she says. “Find a lender who will discuss various options for your goals, and trust your numbers.”
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