House hacking: Live for free in a house you own (Podcast)

Aly J. Yale
The Mortgage Reports contributor

Own a home on the cheap

Want to buy a house but don’t want the whole mortgage payment to fall on your shoulders? House hacking may be the answer.

As mortgage advisor Ivan Simental explained in a recent episode of The Mortgage Reports Podcast, “The essential goal of house hacking is to live mortgage-free and have other people pay for your mortgage.”

Sound intriguing? Let’s dive into this strategy and how it can benefit your home buying and wealth-building goals.

Check your home buying options. Start here (Jan 20th, 2022)

Listen to Ivan on The Mortgage Reports Podcast!


What is house hacking, and how does it work?

House hacking is a homebuying strategy in which you purchase a property with the intent to both live in it and make income off it simultaneously. Because you’re living in the property, it qualifies as a primary residence mortgage, which offers lower rates and lower down payment options than investment loans do.

There are four ways to go about house hacking, including:

  1. Buying a single-family home and renting out the extra rooms
  2. Buying a two- to four-unit property (small apartment complex, duplex, triplex, etc.) and renting out the extra units
  3. Buying a home, living in it for a year, and then renting it out on Airbnb
  4. Buying a fixer-upper, living in it for a year while renovating it, and then selling it 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 fixing and flipping properties, I strongly suggest that you stay away from this one because it is higher risk,” Simental says. “Of course, there is more of a reward as well, but it is a riskier type of investment.” 

Check your home buying options. Start here (Jan 20th, 2022)

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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’re usually generating enough rental income to cover your mortgage payment — either partially or, sometimes, even fully.

For example, if your mortgage payment was $1,200 on a duplex, but you rented the other unit out for $800 per month, you’d only need to foot $400 of that mortgage payment yourself. 

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

It’s easier to get a home loan, too

The other major advantage of house hacking is that it allows you to use a primary residence mortgage while still buying an investment property.

With a primary residence, you can make a down payment as low as 3% (sometimes zero if you buy in a rural area or are a veteran).

Primary residence loans also come with lower interest rates than investment property mortgages. And they’re easier to qualify for, too.

“If it was an investment property mortgage, you’d have to come in with a minimum of 20% down,” Simental says. “It’s also easier to purchase a primary residence than as an investment property because there are additional qualifying factors you’ll need to meet.”

The one-year mark

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

You can then use those returns to purchase another home — again using a primary residence loan (as long as you’ll be living in it). 

At that point, you might opt for your own solo property or repeat the whole process over again, slowly building up a portfolio of income-earning investment properties year after year. 

Whatever you decide, make sure you talk to a mortgage advisor before moving forward with any house hacking strategy. They can help walk you through the process and ensure success.

Verify your new rate (Jan 20th, 2022)