Getting a mortgage can be complicated and full of surprises. Ali and Josh Lupo would know: They’ve gone through the process nine times.
In 2018, the husband and wife held jobs as social workers and owed a whopping $100,000 in student loans, car loans and credit card debt. After being repeatedly outbid on single-family starter homes, they got creative in order to buy their first house in upstate New York for $158,000 — a multifamily property that came with a tenant upstairs.
Since then, the two have bought seven additional rental properties and one forever home, each with another run through the gauntlet that is the home lending process. Their use of this “house hacking” strategy — renting out part of your primary residence to cover future mortgage costs — has given them a unique level of experience and expertise when it comes to getting a mortgage.
Here are five things they’ve learned about home lending that can help you be a smarter, more empowered borrower.
1. Get creative on how you enter the housing market
High home prices add to the difficulty of buying a home for many Americans. And your financial background, like your credit score, income and down payment savings, directly influence the mortgage rates you qualify for. But there are out-of-the-box ways to pair your financial profile with available options.
The Lupos had a high debt-to-income ratiowhich makes it harder to get approved for a mortgage. They realized the traditional path of buying a single-family starter home wasn’t an option for them. Enter the multifamily mortgage.
With a multifamily home, the two could put down 5% while tapping into rental revenue for a portion of the unit. Lenders will often factor that projected rent money into your debt-to-income ratio, which boosts your borrowing power.
And the $158,000, over-100-year-old duplex they bought was an upgrade, taking them from a cramped one-bedroom rental to a “rather lavish” three-bedroom unit with a deck. With an upstairs tenant inherited from the previous owner, the couple was now both homeowners and landlords.
Still, the Lupos are proof you might have to adjust your expectations for your first house. “I didn’t want to move into a duplex, but it was like, ‘This feels like the only opportunity for us to improve our lives,’” Ali explains. “We just made sacrifice after sacrifice.”
Other creative paths to homeownership might include government-backed loans like FHA, VA or USDA loans; low-income homebuyer programs; and asking your real estate agent to look for off-market listings.
2. Scrutinize the 20% down payment rule
In the beginning, the Lupos were saving up to 90% of their income. They lived on just $2,300 a month, drove a paid-off Toyota Corolla, cooked every meal at home and even skipped their honeymoon to save for a 5% down payment. “We were scraping literally every dollar that we had to buy this house,” Ali says.
But that down payment was enough to buy their first multifamily home. Ali points out that the barrier to entry is lower than people think. “There’s the myth that you need 20% to buy a rental property. That’s not true,” she says.
Emily Green, loan officer and Churchill Mortgage branch manager, says a 20% down payment is unrealistic for many first-time homebuyers she works with. She offers the example that, for a $400,000 home, 20% would be $80,000. “That’s more than what most people make in a year,” she adds.
Instead, homebuyers can put down what they’re able to — while meeting the mortgage requirements — and pay additional private mortgage insurance (PMI). On that $400,000 home with 5% down, Green says PMI might only be around $100 to $150 per month.
Still, there are both pros and cons to putting down a smaller down payment. A higher down payment lets you make more competitive offers, qualify for a lower rate, pay less each month and secure more equity.
“In an ideal world, yes, putting 20% down would be great,” Green continues. “But if it’s going to take you years…to try to save that up, you’re stepping over hundreds of dollars to pick up a dime.”
3. Choose your homebuying team wisely
The Lupos worked with a real estate agent in their network to help buy their first house. And they compared several mortgage brokers before borrowing. “We interviewed them,” Ali explains. “We wanted to see what the process would be like.”
The Lupos in front of another of their homes.
Their large debt burden made them less attractive borrowers, but the broker they picked went to bat for them with multiple lenders to help secure a mortgage. Now, they’re on a first-name basis and have an ongoing text thread with the broker. “It’s having someone you know, like and trust,” Ali says.
She advises new homebuyers to do their own research when choosing a homebuying team. “It can feel like everyone around you is making money and has a vested interest in you going through with this transaction,” she says. “You just want to make sure that you have people in your corner that have your back.”
4. Compare mortgage rates before borrowing
For most of their home purchases, the couple has also reached out to multiple lenders on their own — a proven way to find a better mortgage rate. Many homebuyers end up overpaying for their loan by simply borrowing from their bank or real estate agent’s preferred lender. But even a few percentage points can add up to thousands of dollars over the life of a loan.
Josh says they keep tabs on today’s mortgage rates to compare against their lender’s rates. “Being able to cross-reference what [our broker is] saying versus all these different prospective lenders — it creates more dialogue,” he explains.
A competitive rate and smoother process from another lender could convince them to borrow from a different lender for the next home purchase.
5. Know when it’s time to refinance
If you bought a house at a rate higher than today’s market average, refinancing your mortgage could save you interest over the life of your loan. You’d just want to compare the refi closing costs against the potential savings.
The Lupos have refinanced twice in the last decade, a strategic move considering the high amount of mortgage debt they carry. Experts say it’s worth considering a refi when rates are at least half a percent lower than your current rate.
They tried working with a different lender for their most recent refi, but things went south. “It ended up being such a horrible experience that we stopped halfway through because they required all these special assessments,” Ali says. “We went back to the lender that we use and it was so much easier.” She emphasizes comparing lender processes before choosing to refi, in addition to rates.
After all, lenders should work for you, not the other way around.
From house hacking to buying a forever home
In the Lupos’ first duplex, the tenant would walk downstairs and hand them a check. The couple also handled most repairs themselves. But with 14 rental units currently, they’ve since built a team of contractors to handle the steady stream of maintenance requests.
Ali is quick to point out that the couple’s success makes it easy to overlook the years of effort they put into their real estate journey. “It’s tough when people meet us now,” she says. “You needed to see us grind it out for 10-plus years, literally cleaning urine off the floor.”
After years of effort, the couple finally closed on their dream, single-family home in February. The 2,700-square-foot house sits on two acres with four bedrooms and two-and-a-half bathrooms. It meets their 30-point checklist, including proximity to school districts, highways and landfills.
Ali Lupo with her daughter.
And there’s no tenant in the other room.
The path to that front door wasn’t easy, even with the couple’s experience. “I can’t tell you how many times in the last six months we just threw our hands up in the air,” Josh says.
“It’s more important than ever for people to be open-minded to some degree of creativity,” he adds about today’s market. And as Ali puts it, your first house doesn’t have to be your forever home. It just has to be the one that gets you started.
Ali and Josh Lupo are Bankrate partners who receive compensation for referring social media followers to Bankrate, but they were not compensated for this article and did not have any editorial involvement in the creation of this content.
Aashura is the Lead Researcher at CryptoListed.net. As a dedicated crypto investor and analyst since 2018, he specializes in creating clear, data-driven guides that help users navigate the market safely. Follow his latest insights on Twitter @[YourHandle].
