Hi, obviously I'm a newbie and I apologize in advance if I sound like a fool. I was wondering if someone can be approved for an FHA 203k owner occupied loan while simultaneously putting the property under an entity?
203K cannot be done under an LLC but there's little to stop you from transferring to a trust or other entity later on. Don't get too caught up in needing to put something in a LLC right off anyways. Nothing wrong with owning it in your personal name - just be certain you are adequately insured.
@Ryan Murdock I had 0 clue. Thank you for this. How about if the initial loan is 203K, you then refi...I suppose after the refi you can make the transfer, yes?
@Moises Benitez You probably could make the transfer after a refi but with a 203k you'd likely have a great rate for a fixed 30 year term so doubtful you'd want to refi away from that unless you really created a ton of equity during your rehab. With that said, I am definitely not a 203k expert and there are guys on here who can give you much better advice than I can.
An LLC is an entity (a business entity). An owner occupied borrower is an entity.
The FHA loan (not to mention the 203K or 203B) are for owner occupied borrowers. So, they are not offered to businesses. That is why you can't purchase as an LLC. An LLC can't occupy.
You can quit deed any property to an LLC at any point after the fact. However, you run the risk of triggering the due on sale clause that the lender places on the loan. It is a very small risk if your loan is current, and there are no other issues, but be aware that it is risk, and it is there all the same.
The best way to transfer a property into an LLC is to do so either once the property is paid off, and there is no lender, OR to obtain a commercial or hard money loan, or any other loan that would lend to a business entity.
@Ryan Murdock is spot on. The Federal Housing Administration is in the business of helping people buy homes. So, they don't do loans with corporations.
Putting a property into an LLC makes it a corporation. That would limit the property to commercial loan products, which have higher rates and higher down payment requirements than an FHA or Fannie Mae residential loan product.
You can buy the property with a 203K loan and then later refinance it, but refinancing it with a commercial loan product will cost more.
You can do the 203K, refinance it later, and then transfer it to an LLC. However, the transfer might trigger the due on sale clause by the lender.
Thank you, @Christopher Phillips this helps. I was way off on my planning. The devil is on the details.
I am just getting started as well @Jose Vazquez . Thanks for posting.
Do you have to owner occupy the home on an FHA 203K loan?
@Heather Proctor yes. It needs to be your primary residence.
Thanks guys. I appreciate the information. I just closed on my first deal. A duplex in Reading PA. FHA owner occupied. I’ve been living at the property for about a month and a half. 5 bedrooms in my unit, two bedrooms in the downstairs unit, and a two car garage. New plumbing, electric, etc.... 15% R.O.I. If I play my cards right.
It’s a really nice property but the block we live on is very ‘Lively,’ to say the least. A lot of music, hanging out, etc... it isn’t somewhere I see myself five years down the line. As you all may imagine, land lording has been very interesting in a neighborhood like this one. I’m learning a lot, and learning fast. Lol.
Nonetheless, it’s a great start. I’m saving a lot of money and I’m learning via trial and error. God willing, our next property will be FHA 203k, in my girlfriend’s name, in a better area. We’ll ‘buy better’ and build the proper systems in order to prepare ourselves for anything that may happen.
Thanks again for the info. You guys are amazing and I’m grateful for bigger pockets. The community has helped me in ways you wouldn’t even imagine. :)
@Jose Vazquez @Ryan Murdock you are correct on the 203k and the LLC questions. 9 times out of 10 you will refi out of the 203k because they typically hold somewhere between 1/4 to 3/4% higher rate than a 203B (regular FHA loan). If you do it correctly and get the instant equity that we normally see I would than recommend refinancing into a conventional loan. From there start the process again and use the 203k to buy your next one. You can really go from one property to another once a year if you employ the house hacking strategy properly.
Good luck in your investing!
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