Mortgages & Creative Financing

How My Wife & I Scored 100% Financing on Our Dream Home

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Isn’t that a catchy headline? I’m trying to channel my inner Brandon with some of the beard power, but he’s so good at naming things.

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So, it’s a catchy headline but there are no secrets. Here is how and why I gave my wife yet another house on our journey to financial freedom.

I (Sorta) Bought My Wife (Another) House

The first one was my BRRRR that failed – you can read about that here.

The second house I gave to my wife was purchased in February 2019. It wasn’t an investment as much as the dream home plan, especially when you run the numbers. We were looking for a large parcel of land to build our dream home and start a farm.

However, we didn’t have the multiple six-figure money to plunk down on a primary home, plus the large tract of land. And at this point as beginners in our investing career, we knew that there are better investments out there from a return on capital standpoint.

So, I channeled my inner Kiyosaki and asked myself, “How can I afford the dream home with 100 percent financing?” Then, I let the creative process flow from there…

Related: USDA Rural Development Loan: The 100% Financing Loan That’s Not “Just for Farmers”

Dream Home Deal

I searched for a house with 25-plus acres that needed a rehab. My thought process was: use hard money to finance the purchase, subdivide the land, rehab the house, and aim for the value of the house AND the minimum lot size to equal the amount of capital invested in the deal.

Then, I'd split off the rest of the land, owning it outright, to use the land as a down payment on the new construction to a permanent financing loan.

subdividing-land

 

The Numbers:

  • Single family home on 64 acres in rural Connecticut
  • Bought for $279K
  • Sold to wife for $300K, while keeping 57 acres for the dream home
  • Rehab about $5k—very light and did a majority of work ourselves
  • Subdivision/holding costs $20K+
  • Hard money on buy: 70% ARV, 10% interest only, 3 points. (Typically we get better rates, but it is very hard to comp a large land deal, and we had the unknown timeline of subdivision.)
  • Sale side loan to wife: 5% conventional down payment, MI (Mortgage Insurance) until 20% equity, 30-year fixed at 3.75%

I will fast forward through the subdivision part, even though that brought its share of frustration, time, money, and learning as I went along.

The biggest takeaway is real estate development isn’t a poor man’s game, nor a beginner’s. It is often capital intensive, unpredictable, and hard to underwrite the timeline of completion.

But creating just one additional lot for our primary wasn’t as difficult as creating 20 to 30 lots, so I felt comfortable with the risk as a first time developer.

I Ended Up Selling a House to My Wife

It is almost my three-year anniversary of quitting my teaching job to go into real estate investing full time. Thanks, BiggerPockets. 😉

Before I can become financeable again, I have to have two years of tax returns showing a profitable business, which will be this next year. This plays a part on the refinance side and is why my wife is starting to trump me on collecting houses.

Our original goal for this deal was to cash-out refinance at six months with a local credit union. As we neared that date, we found out you can only cash out 75 percent of the purchased value in the same year—not 75 percent of the new appraised value. Typically, they lend on the lesser of the two values. That left us with a $213K loan instead of $244K.

This was disappointing for cashing out the majority of our funds at the closing table. And the interest rate was 75 basis points higher than purchase rate as a portfolio loan.

Related: No Money Down Loans: How Do They REALLY Work?

This was another argument that I had with the last bank on the BRRRR deal: “Would there be a seasoning requirement if I just sold it to my wife?”

They said no. And then I asked them, “Why the he** does it matter, then?”

I always question the reasons behind certain guidelines. But this deal wasn’t necessarily a seasoning problem—it was a cash out problem.

So, I said, “Can my wife just buy it from the LLC?”

They said yes.

And then I asked, "Can she use her FHA loan?"

Again, they said yes.

“Can she use a 5 percent conventional?”

We wanted this because it is cheaper mortgage insurance. The cash was sliding back across the table, so either loan did the job.

The Bottom Line

So, this is how we got 100 percent financing from Fannie/Freddie.

My wife used our savings account funds. This included 5 percent down plus closing costs, so about $26K to close.

At the closing table, the funds slid back across the table to my business account, making me whole again, leaving us to own the land outright and putting a high-leveraged loan on the new primary house and six acres.

being-held-accountable

The downside of selling:

  • Have to trust your wife 😉
  • Tax implications on the profit, if any
  • Transfer tax of 1%
  • Having one income to qualify, not dual income (husband/wife)

The Takeaway

Work together in a partnership. You both may bring more to the table in terms of strengths than you think.

And always be creative when it comes to financing. Learn the rules and play by the rules to get all the good debt you can with good property.

The New Goal

The new goal is to use the land as the down payment in the new construction loan for another 100 percent financing house. If the land appraises for 20 percent of the construction costs, that is considered our skin in the game.

If we went the conventional way with a $600K purchase for building our dream home, it would've cost around $120K as the down payment on the loan plus the land cost, easily topping $250K.

With the creative way, we get two houses, which includes our dream home and land, all for thinking outside of the box and asking ourselves, “How can we?”

The new-build cost is $419K for a modern farmhouse on 57 acres. I will be the licensed general contractor on the project and will be finishing the kitchen, bathrooms, trim work, painting, and tile work.

I enjoy those parts of the trade and will be documenting the process,. Feel free to follow along with the process here.

hard-money-lenders

Questions for me about this deal?

Ask in the comment section below.

Scott Hollister is a real estate investor, lender, and licensed agent in central Connecticut. He began real estate investing in 2012 with a house hack after his parents lost their home in the reces...
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    David A Love from Knoxville, TN
    Replied 21 days ago
    Brilliant!
    Joseph Chierotti Investor from Denver, CO
    Replied 21 days ago
    This is great Scott!
    David Krulac from Mechanicsburg, Pennsylvania
    Replied 21 days ago
    Scott, enjoyed your blog post, very creative. My Wife has bought property to satisfy the 10 mortgage limits of Fannie and Fredddie,but in the 975 deals that I have done so far, I never sold a property to my Wife. Great story. to your continued success. David Krulac Bigger Pockets Podcast #82
    Scott Hollister Rental Property Investor from Vernon Rockville, CT
    Replied 19 days ago
    @David Krulac. Honored to have you say my deal was creative, seeing how you're the most creative guy I know in real estate! And for anyone reading, David has THE BEST book on super creative real estate deals (How I Started with Nothing and Made $12 Million in Real Estate Part-Time). It should be on every investors book shelf:)
    Kerry Baird Rental Property Investor from Melbourne, FL
    Replied 21 days ago
    Love the creativity!
    Ryan Luby Rental Property Investor from CT
    Replied 20 days ago
    This is awesome! I think if I read this twenty more times I may start to actually understand the whole process lol Great work!
    Sean Cullen Rental Property Investor from Warner Robins, GA
    Replied 20 days ago
    What a great story. Thank you for sharing Scott!
    John Prorok from Western NY
    Replied 18 days ago
    Thanks for sharing Scott, it sounds really cool but I'll admit, you lost me in the details. How is your property 100% financed if your wife put in $26K for a $300K conventional loan? It looks you spent ~$304K before selling to your wife, so it doesn't seem like the sale quite made you whole. Is the idea that once you subdivide and sell, it'll cover the down payment and closing costs from the sale to your wife? I'm also curious, did the hard money loan cover the entire $279K initial purchase? If not, where did the rest of the funds come from and how was the ARV determined with your hard money lender? Thanks again for sharing!
    Scott Hollister Rental Property Investor from Vernon Rockville, CT
    Replied 17 days ago
    Hello John, Ya it is complicated, until you go through the process at least once. I remember not understanding the BRRRR fully until I finished my first one. It is 100% financed in the sense that I was the seller and her down payment came back across the closing table to my business account. Even though the house was sold to my wife, it is still our money. Two months prior to closing (bank requires 2 months bank statements) I put my money in our savings account to season. So I received 299k at the closing table, minus the hard money, closing costs, etc. And the extra money spent(or left in the deal/land) was used for the large tract of land we are keeping. We spent 279k plus the 5k rehab or so on the house I sold to my wife. (Not counting holding costs) Closing costs were around 9k on the sale, so let's call it 295k or so wrapped up into the house and 6 acres. There were other subdivision costs, hard money interest, points, etc. to subdivide the land. Originally it was a seller financed deal with great terms until it hit the sellers attorney, which is common place from what I'm finding. So hard money is always my back up after private financing/own cash. I do some lending in CT, as well as a licensed agent. So determining the ARV in my market is "easy" for me with access to the MLS and knowing my market. However the larger tracks of land are more difficult to comp out, which is why I paid a premium on the hard money (10% and 3 points). So it was a 210k 1st position hard money, 2nd to cover the gap at 10%, and I covered the holding costs. (Points, fees, interest, taxes, insurance, rehab budget, subdivision, wetlands, surveys, application fees, etc.) And typically for hard money ARV is determined with an as-is appraisal and after repair value. It's very important that you meet the appraiser at the house so you can go through your scope of work and guide them to the value you want. I had a very hard time explaining we are buying a house with 64 acres for 279k, and after we peel 57 acres off, it will be worth more. Hope that provides some clarity? I'm trying to get better at explaining things through writing.
    Scott Hollister Rental Property Investor from Vernon Rockville, CT
    Replied 17 days ago
    And our dream home is 100% financed because we were able to create the value in the land. Since we own the land outright, and the value is at least 80% of the construction costs, we will not have to put any money down. The land will be our skin in the game or down payment.