Mortgage

Home hoes: Stay in your personal home without cost (podcast)

Own a cheap home

Looking to buy a home but don't want the entire mortgage payment to fall on your shoulders? House hacking can be the answer.

As mortgage advisor Ivan Simental recently stated on an episode of The Mortgage Reports Podcast, "The main goal of home hacking is to be mortgage-free and have other people pay for your mortgage."

Sounds fascinating? Let's dive into this strategy and how it can benefit your home purchase and wealth accumulation goals.

Review your home purchase options. Start here (29.11.2021)

Hear Ivan on The Mortgage Reports podcast!

What is house hacking and how does it work?

House hacking is a home buying strategy in which you buy a property with the intent of living in it and generating income at the same time. Since you live in the property, it is considered a primary residence mortgage, which has lower interest rates and lower down payment options, than investment loans.

There are four ways to do home hacking, including:

Buy a single-family house and rent the additional rooms Buy a 2 to 4-unit property (small residential complex, maisonette, triplex, etc.) and rent the additional units Buy a house, live in it for a year, and then rent it out on Airbnb A fixer-upper buy, live in it for a year, renovate and then sell for a profit

Strategies 1 and 2 are the most common, while the last two are a bit more complicated.

"If you are not familiar with the fusing and turning properties, I strongly recommend that you stay away from them as they pose a higher risk," says Simental. "Of course there are more rewards, but it's a riskier type of investment."

Review your home purchase options. Start here (29.11.2021)

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House hacking lowers your mortgage payment

The biggest benefit of house hacking, at least in its most common forms, is that you will usually generate enough rental income to cover your mortgage payment – either partially or sometimes in full.

For example, if your mortgage payment was $ 1,200 for a maisonette, but you rented the other unit for $ 800 per month, you only have to pay that $ 400 of that mortgage payment yourself.

“It takes away a lot of the mortgage payment so that you can invest it elsewhere,” says Simental. "You can also use it to create an emergency fund."

A home loan is also easier

The other great benefit of house hacking is that you can use a mortgage on your primary residence while still buying an investment property.

With a primary residence, you can pay as little as 3% down payment (sometimes nil if you're buying in a rural area or a veteran).

First home loans also come at lower interest rates than investment property mortgage loans. And they are also easier to qualify.

"If it is a mortgage loan for investment property, you have to pay at least 20% less," says Simental. "It is also easier to buy a primary residence than an investment property because there are additional qualification criteria that you must meet."

The year old stamp

Primary residence mortgages require you to live in the home for at least a year after it is closed. At this point, you can convert the home into a full rental, Airbnb, or sell for a profit.

You can then use those returns to buy another home – again with a primary home loan (as long as you live in it).

At this point you can decide on your own individual property or you can repeat the entire process again and slowly build up a portfolio of investment properties year after year.

Whatever you decide, be sure to speak to a mortgage advisor before proceeding with any home hacking strategy. They can guide you through the process and ensure success.

Confirm your new price (November 29, 2021)

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