Assuming FHA Loan's as portfolio building strategy

3 Replies

I just closed on my second investment property (a duplex) and should have it fixed up and rented hopefully over the next couple of weeks. My first property is a triplex and it cash flows nicely about $200 per unit. I have a good permanent job but definitely don't have the cash for another 25% down deal.

I have a partner who has agreed to purchase the next triplex/quadplex using an FHA owner occupied loan. This means we can buy the house with 3.5% down. (We will be using FHA loans since they are assumable and neither of us qualify for VA.)

Now I have 2 questions that will make or break this as a good strategy to keep using after this transaction:

1. Is there a time period that must pass before an FHA loan is assumable or can it be assume within a month from closing. If so what is the time limit?

2.If my partner is willing to use this strategy again, is it possible for him to get financing again using an FHA loan for the next owner occupied property. If so what are the time lines and limitations if any?

This most recent podcast with phil dwyer really got me thinking about this strategy as something worth trying and asking about.

I think you have some ideas that are not going to work out in this plan. Assumption is at the Mortgagee's discretion. There is no guidance on the matter of time for approval of an assumption, however getting a loan and then 30 days later trying to get out from the loan is not going to sit well with any Mortgagee. It is not clear who it is you were planning on trying to get to assume the loan, but I get the impression it is a business entity you both own. That will not fly and your buddy could be accelerated and pursued for loan fraud, since it would seem that was the intention all along thus going against the statement in his loan documents which state the loan is for a property to be used as his primary residence.

Your partner will not get loan number 2 if he transfers with an assumption. Assumptions are treated a little like hardships, they are not a free for all. If he buys, then transfers and they believe his story on why he needs to, they will not be quick to give him a new loan. I am sure there is some guidance on that at Ginnie Mae, I don't know off the top of my head but I am sure without a reasonable explantion he might be looking at a year or two before they let him qualify for another FHA loan.

@Gualter Amarelo It's my understanding that you can only have one FHA loan at a time.

Here's an idea though: What if you used a FHA 203k loan to purchase a 4-plex and rehab it? If done correctly, your ARV should be enough to refinance into a conventional loan. I'm not sure how long you would have to live in one of the units before the refi, so you'll want to get that figured out. The beauty of this plan is that you can put 3.5% down, get rehab money too, and do it without a partner.

Hey Phil thanks for your input! I like the fact that I wouldn't need a partner for this strategy. I've always avoided any houses that might need a 203k, but I'll have to look more into the loan product itself. If I can use it as a way to roll the cost of repairs into the loan, it would kill 2 birds with one stone. Thanks again for all the great information and advice in the latest podcast!

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