If a HUD is listed as UI (Uninsured) for FHA, is it possible to get Conventional loan?

Question

I am considering a HUD that is FHA financing UI (Uninsured). Would the offer have to be cash or hard money? Are there Lenders willing to loan conventional financing on distressed property? The house needs paint and flooring, has some holes in the sheetrock, and is missing appliances (stove and dishwasher).

My long term goal is to own it as a rental.

Joel DeLuca · Answer

Interesting.  That is kind of what I was thinking...that it would be iffy going conventional.  I'm thinking that it would be better starting with Hard Money then once it is rent stabilized convert to Conforming.

Brett K. · Answer

This is one of the biggest mistakes I see new investors make.  I'm not saying this may not be a case where the property can go conventional.  It's hard to say without seeing it.  However, getting a conventional loan is can be iffy on these and it's hard to operate a business on 'iffy'.

I'd try a local bank that specializes in investor loans.  Usually it's a short term loan (but they can extend it if needed) and they will want to put a lien on your primary residence or they want you to put 20% down.  The upside is they'll finance your REO purchases until you can get them repaired and into conventional financing.  Ask around at your local REI.  Good luck.

Joel DeLuca · Answer

@Mark  Ferguson

@David Krulac  You guys make great points.  I think I have one that fits into the peeling paint, missing appliances, and ruined flooring.  The HVAC is intact and no big issues on the PCR.  I will be doing a thorough exam in the morning.

Mark Ferguson · Answer

@David Krulac  I can't argue with any if that. :)

David Krulac · Answer

@Mark  Ferguson

Yea, I know, but my point is there is some inconsistency.   the house with the missing gas furnace and AC was insured but with the butcher job of the removal and cut lines and ducts, I'm sure it could not be repaired for $5,000 but it was listed as insured.

And other cases there have been relatively minor flaws, well less than $5,000 and the property is listed as uninsured.

And then there is the third type of property, where I marvel how the property was financed FHA the first time as there are clear major defects that would be rejected by an FHA appraiser, so how did it become a HUD repo?

Mark Ferguson · Answer

@David Krulac  it all depends on if the appraiser feels the items can be fixed for $5,000 or less.  If so it can go FHA with the repair escrow.

David Krulac · Answer

@Joel DeLuca

Uninsured covers a lot of area.  there may be relatively minor problems with the property or there could be a major damage to vital components.

From the properties that I've seen there is also wide disparity on what is insured/uninsured by HUD.   Recently saw a place where somebody had take out the entire heating system and HUD called that insured.  I don't think the FHA appraiser will call a house with no heating system insurable?

Other times houses are uninsured if there is peeling paint, broken/cracked glass or missing handrails, all of which are HUD hot buttons.

Joel DeLuca · Answer

Thanks, that is good to know.  It did pass the pressure check.

Mark Ferguson · Answer

You an go conventional, but it will have to pass an appraisal most likely. Most conventional lenders will want utilities on.  Make sure you read the PCR to see if the plumbing holds pressure. You won't be able to turn on the water if the pipes don't hold pressure.