How To Make This Work in Chicago

Question

Hello BP,

I am owner occupying a property that I financed with an FHA loan.  My 1 year residency requirement expires April 2017.

I recently found a property listed as a short sale that I would owner occupy.  The problem is, I couldn't owner occupy until April 2017.  Knowing that it can take months to hear back from the bank on an offer for a short sale, what is the communities' thoughts on me making an offer?  What obstacles could I face in this process?

Ryan Canfield · Answer

@Jerry Padilla thanks for the information Jerry.

Ryan Canfield · Answer

@Penny Clark in a perfect world I would like to us an FHA loan but there is not enough equity to re-finance to a conventional mortgage, therefore I'd have to use a conventional mortgage.

@Jerry Padilla Would someone be approved if it's been more than 3 months since closing on an owner occupied FHA mortgage?  We closed on this FHA mortgage I believe it was March 7th, then we rented back 2 of the units to the previous owner for about 40 days before moving in an occupying in early April.  I thought if you were occupying the property, you could still use 15% down even after owning more than 1 property?  I was told before buying my 2nd property that owner occupied down payments were as follows: 15%-2 unit, 20%-3 unit, and 25%-4 unit?

Account Closed it sounds like you know what you're doing when it comes to short sales!  I would be hoping that the person receiving the offer is the complete opposite of you in the sense that the longer it took to process the more time would elapse on my current owner occupied property.  In my situation, I would at least be able to be flexible and if it took months to hear back it wouldn't be a problem.

Account Closed · Answer

You should inquire with the listing agent as to where in the process the short sale is. As a real estate attorney that handles short sales, I begin my negotiation process as soon as the listing comes in the door. So by the time an offer comes in,  I have put together an entire financial package on the Seller (3 month bank statements, hardship letter, 60 days paystubs, etc.) This means that I can then present the offer to the short sale lender and things will go much smoother and quicker.

Unfortunately, this is not the case when the Realtor or attorney handling the transaction on the Seller side is not familiar with how a short sale works. They may begin the process at the time an offer comes in. That means that they won't have an approval letter, if one will be forthcoming, until several months, at least.

Since short sales are never guaranteed to go through, you may want to consider an attorney or firm who only charges if the deal actually closes. This is how our firm bills. We don't charge if the deal falls through. However, if you had conducted an inspection and or appraisal, you may still be out that money.

Jerry Padilla · Answer

@Ryan Canfield

For an owner occupied primary residence you can get a Duplex for 15% down and a 3-4 unit is 25% down......

But, it has only been a couple months since you closed. Any underwriter is going to see that you are just trying to purchase more property as an investment - whether you occupy it or not. If it was a year or greater, you would probably get approved for another primary residence, but not after a couple months.

Jerry Padilla · Answer

@Ryan Canfield

You won't be approved for another owner occupy 3 months after closing on FHA mortgage. Any underwriter will see that you just recently purchased an owner occupied residence.

You could apply with conventional investor financing. If it is a SFR than you could put 15% down and if it is a MFR than you are required to put 25% down.

Penny Clark · Answer

@Ryan Canfield, are you planning to get an FHA for the short sale property as well or do you plan to re-finance your current FHA into a conventional loan? I know that you can only have one FHA loan at a time. I also know that banks have gotten smarter and have streamlined the process for short sales since a few years ago. In 2011 our short sale took almost a year, but it was our first rental purchase and we had to assist the cash-strapped owner in removing her tenants who had been living free for over a year. Short sales can be done within a couple months if the right offer is presented to bank and  the owner is cooperative.

Good luck!

How To Make This Work in Chicago

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