Buying under FHA 203k, ultimately flip to conventional... how does this work?

4 Replies

Hey there - looking into my first investment - a MF property in the Boston area. We're planning on getting this with 3.5% down under an FHA 203k loan, and putting 50k-100k into repair and upgrade costs.

We know that the ideal scenario is that we get this property, do the repairs, and then get it re-appraised and somehow at the appraisal process we're able to refinance into a conventional loan product and do away with the PMI payments.

My question is - how exactly do the numbers work on this flow? Hypothetically, we're looking at a 740k loan package which includes closing costs and 100k in repair costs. 26k would be the down payment. 

Hi Colin - I live in Watertown and have never done an FHA 203k loan but have experience with investments. I am not 100% sure what your question is in regards to the numbers?

Let me know and I'll provide feedback if I can.

Steve

I'll see if I can find a better way to describe...

Basically - trying to understand what I would need to achieve in terms of value creation during the renovation process while under the 203k to be able to seamlessly refinance into a conventional product when everything is finished. 

I understand broadly how the process works, but what I'm missing are the finer details that would help me to evaluate potential deals. 

Got it - if you are looking to go conventional post the FHA loan you would probably be looking at an 80% LTV product, maybe an outside shot a 85-90% LTV type of product through a bank or a local credit union in the area if you plan to owner occupy, which I assume you do since you need to on an FHA product. I have a couple of contacts I could put you in touch with in the area if you would like at a local bank that might be able to assist you on the re-fi as you get more serious.

Just so I understand correctly, a few questions/comments:

1) What will your total loan and rehab costs be for the FHA product upon completion of the project? $740k?

2) How many units and what town is the multi fam in?  

3) How far along are you in the buying process on this house?

4) A couple of other considerations on the FHA loan - A) PMI cost - this is an added cost when dealing with an FHA loan. It can be steep on FHA products, be sure you factor this in to your costs. B) Early term penalties if you are to re-fi the FHA loan quickly. Not sure there are any but something to be aware of/ask about.

Let me know

Thanks Steve. We're fairly early in the process. Shopping, but making sure we understand all our options before pulling the trigger. 

Total loan and rehab would be $740k on a 3 unit property.

As for PMI, that's what we're hoping to cut out by refinancing. Didn't know about early term, but will definitely consider.

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