House may not qualify for FHA loan. Any options?

7 Replies

I have been looking at a property for a couple weeks that I believe would be a good starting investment for me. It is two homes, and I believe it is legally two separate addresses.  I got a tour from a realtor today and the bigger house was obviously a fixer upper. The small house is still in good condition with the exception of the  bathroom floor falling in, but I believe the small house must have been built much more recently. 

Toward the end of the tour the realtor mentioned that the house probably wouldn't be approved for FHA because it currently has no functional heating (non-functional natural gas heating) and there is some deterioration on the house.

Would I be able to be approved for FHA since there is another house in better condition that I could live in while I fix it up?

I would prefer to be able to live in the big house while I fix it up and THEN move into the small house to rent out the large one, but I'm looking at any options right now to try to figure out the plan.

I have enough funds right now to buy the house with an FHA loan and begin the rehab, but a 20% down payment would guarantee that I can't do much rehab for at least a few months.

So, options?

Is it possible to have FHA on both of these houses if one is livable?

Is FHA so strict it would prevent me from buying a house that I could have in FHA conditions within a few weeks of purchase?

Are there other loans I can look for? I wouldn't be comfortable with trying a BRRRR at this point with no experience.

Any other options I am missing?

I ran into a very similar problem recently. You might be able to use the FHA 203k loan (still 3.5% down) and have the rehab costs lumped into your loan.

I'd like someone else to confirm what I'm saying but from my research you need to have at least 5k in repairs. These repairs can't be done yourself and will require an FHA appraiser to assess the work and an FHA inspector to check the work when it's done.

For me, I want to do the work myself so I thought that maybe I can use the 203k to "rehab" the property up to minimum FHA standards then say it was complete. At that point, FHA is satisfied and you can either work on the property yourself or hire whatever contractor you want. I didn't implement this strategy (I didn't end up buying the property) but this is sort of how I would speculate using it. I'm in the same boat as you, conventional financing makes it too tight.

Good luck. I hope some others answer. I'm interested myself.

Are the two homes on one lot, or separate lots? If they are totally separate, I don't think you can use one single FHA loan for both of them.

Hi Jacob, I am actually in a similar situation right now looking to do my first house hack on an FHA loan. There is a duplex with an adjacent SF home. It looks like the owner split the lots -- why they would do this is beyond me. ha! Nonetheless, as lending talks are underway I'm trying to figure out the same thing: can we buy both under an FHA? As mentioned above, zoning could be a problem - is it zoned SF or Multifamily? I checked our county plat maps and found the two lots have separate zoning. Right now, I'll probably reach out to the city and see if there is a way to rejoin the plats and zone them both under multifamily. I think it's really going to come down to what my lender wants to see though, and if I can get the bundle offer accepted.

Appreciate the 203K FHA recommendation above! I'll let you know what my lender comes back with. I would be curious to know how things work out for you man. Please keep us in the loop!