HELP! Newbie Investor - FHA 203K for a Flip

Buying & Selling Real Estate
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HELP! Newbie Investor - FHA 203K for a Flip

Danny Ye
Rental Property Investor · Los Angeles, CA · Member since 2019 · 5 posts · 1 vote

Hi everyone,

I am a new investor based out of California and am looking to get started in real estate investing. First off, thank you to Brandon Turner, David Greene, and all the members of the BiggerPockets team. You guys have me HOOKED on real estate investing and I am dedicated to succeeding in REI. And of course, thank you to the rest of the BP community who have contributed so much value and insights to newer investors like myself on this forum.

I found a short sale SFH and have determined that the numbers will not necessarily work as a long-term rental but will work as a flip. I'm thinking about using the FHA 203K loan to pursue this deal and have some questions regarding this loan.

1) How long after the loan close can I sell (flip) the property? I read online that you cannot sell within 90 days of loan close?

2) After selling the property, would I be disqualified from further FHA loans for 3 years? FHA defines first-time homebuyer as "an individual who has not held ownership in a principal residence during the three-year period ending on the date of the purchase."

I'm afraid that if I use the FHA loan for this flip, I will be disqualified from using it again right afterwards (for at least 3 years?). If this is the case, I don't want to waste the loan on a flip and would rather use it for a long-term rental property.

Any advice on the above would be greatly appreciated. Thank you all and stay safe!

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Paul Welden
Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
5y

@Danny Ye FHA loans are for borrowers who intend to occupy the property as their primary residence for a minimum of 1 year.

So, if your intentions are something different, do not commit mortgage fraud and just get a different type of loan. 

But, YES, you can refi out of the FHA 203k loan after 6 months into a conventional loan. That does not change the intent you had going into the FHA 203k loan.

For refi, you get a conventional loan as an owner occupant, intend to occupy it as such. Otherwise, you can get a non-owner occupant (investor) conventional loan. 

Whatever, you do, don't commit mortgage fraud. 

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  • Matthew PorcaroBusiness Member
    Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
    5y

    @Danny Ye

    The FHA is good to get you started but not to repeat. There's plenty of doors that open for you after the first deal.

    Stop worrying about things that don't matter. Get this deal under your belt, build equity, get cash flow, get experience, and you'll see how using an FHA every time is not a good idea.

    The 203k Way
    WebsiteView Page
    1Reply
  • Danny Ye
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 5 posts · 1 vote
    5y

    @Matthew Porcaro 

    Thanks for your quick reply! I saw your responses on other questions regarding the FHA loan so I really appreciate you taking the time to respond and give your advice. I'm somewhat of a must-know-the-next-steps type of person but I definitely agree that getting experience under my belt is more important and feel reassured that more doors will open after the first deal.

    I read that you financed your first deal through FHA and was able to build significant equity through the process. When you moved on to your next deal, did you cash-out refinance into a conventional loan for your next property?

    0Reply
  • Matthew PorcaroBusiness Member
    Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
    5y

    @Danny Ye

    Take it from me, the worst thing you can do in this game is worry about anything other than the next step in front of you. Analysis paralysis kills more people from getting started than anything else in this game.

    After I finished my rehab on my 203k I got the reappraisal and refinanced out of the FHA to a conventional mortgage. The rules with refinancing cash out of an FHA are tricky. Plus I think cash out Refis aren't the best bet if you're not using the money immediately. Also if you're renting out the property that's going to heavily eat into your cash flow.

    I took a HELOC out after I moved out which I'm retrospect I would have done the heloc while I was living there because you get better rates that way.

    The 203k Way
    WebsiteView Page
    1Reply
  • Danny Ye
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 5 posts · 1 vote
    5y

    @Matthew Porcaro

    I see, that makes a lot of sense! Really appreciate your responses here as I'm much more confident moving forward now. Thank you again for the advice!

    1Reply
  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Danny Ye You cannot use the FHA 203k loan as an investor for a flip, and the FHA 203k requires you to occupy the property as your primary residence for a minimum of 1 year.

    FHA loans are not allowed to be used by non-owner occupants and can only be used by borrowers who will live in it as their main home.

    You may want to consider a Fannie Mae Homestyle or a Freddie Mac ChoiceRenovation. 

    0Reply
  • Danny Ye
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 5 posts · 1 vote
    5y

    @Paul Welden

    Thanks for your reply and for pointing out the fact that the FHA requires you to use the property as your primary residence for at least a year.

    I read that you can refinance out of an FHA loan after 6 months if you are up-to-date on all your payments. After refinancing out of the loan into a conventional loan, the one-year primary residence requirement would no longer be applicable correct?

    Really appreciate you pointing out the Freddie Mac ChoiceRenovation loan as I have not heard about that one yet. Will check it out and see if it would better fit my situation

    Thanks!


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  • Paul Welden
    Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
    5y

    @Danny Ye FHA loans are for borrowers who intend to occupy the property as their primary residence for a minimum of 1 year.

    So, if your intentions are something different, do not commit mortgage fraud and just get a different type of loan. 

    But, YES, you can refi out of the FHA 203k loan after 6 months into a conventional loan. That does not change the intent you had going into the FHA 203k loan.

    For refi, you get a conventional loan as an owner occupant, intend to occupy it as such. Otherwise, you can get a non-owner occupant (investor) conventional loan. 

    Whatever, you do, don't commit mortgage fraud. 

    2Reply
  • Danny Ye
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 5 posts · 1 vote
    5y

    @Paul Welden

    Thanks Paul, I appreciate your concern and that is definitely not my intention! I'm just trying to figure out the intricacies of the loan so that I can plan for the length of time I'd have to live in the property before I decide that I wanted to move/pursue another deal.

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