Investment loan property condition

5 Replies

Ok so im currently investigating my financing options and i know its very difficult to get a conventional loan with 5% down if the property is in bad condition ie bad roof holes in walls ect. My question is, is it just as difficult to obtain an investment loan 20-25% down for the same type of properties or are lenders more lenient because you already have so much invested? Either way i plan on occupying the house and doing all the repairs myself until it is rent ready. I would love to get an fha 203k but i think it would be to hard to convince the lender that i am capable of doing the repairs myself and it would cut into my future cashflow with a higher mortgage payment. Any help would be appreciated.

Originally posted by @Dustin Boggs :

Ok so im currently investigating my financing options and i know its very difficult to get a conventional loan with 5% down if the property is in bad condition ie bad roof holes in walls ect. My question is, is it just as difficult to obtain an investment loan 20-25% down for the same type of properties or are lenders more lenient because you already have so much invested? Either way i plan on occupying the house and doing all the repairs myself until it is rent ready. I would love to get an fha 203k but i think it would be to hard to convince the lender that i am capable of doing the repairs myself and it would cut into my future cashflow with a higher mortgage payment. Any help would be appreciated.

 Hi Dustin,

I'm going to be frank, because the "buy a dump and fix it" world is one where frankness is needed.

There cannot be health or safety issues remaining at the close of escrow unless you do renovation financing. Are you comfy repairing any that pop up and are noted by the appraiser, basically doing work on a home that you do not presently own? (HINT HINT here about you going to the home BEFORE the appraiser shows up... if the appraiser doesn't see & note it, the lender wont know about it.)

Next, the 203k renovation question. If you're a contractor and qualified to do the work, you can do the work. You can be paid for materials at-cost in such a situation, but not for your labor. If another contractor did the work, the 203k reno budget could include materials AND labor. (HINT HINT I'm not going to be sitting there monitoring who is swinging what hammer.)

http://assets.mymortgageinsider.com/wp-content/uploads/2013/04/Self-Help-Agreement-PDF.pdf 

@Dustin Boggs

To answer your question......... 

For conventional financing, no matter your down payment, the house has to be in livable condition. This is why so many people go the route of cash, hard money, private money than rate and term refinance or cash out finance when the house is done. 

I wouldn't recommend making repairs on a house you don't own, in hopes that you close. Things fall through and people back out of deals all the time, and issues can be noted by the appraiser that you are not aware of. 

Originally posted by @Dustin Boggs :

Ok so im currently investigating my financing options and i know its very difficult to get a conventional loan with 5% down if the property is in bad condition ie bad roof holes in walls ect. My question is, is it just as difficult to obtain an investment loan 20-25% down for the same type of properties or are lenders more lenient because you already have so much invested? Either way i plan on occupying the house and doing all the repairs myself until it is rent ready. I would love to get an fha 203k but i think it would be to hard to convince the lender that i am capable of doing the repairs myself and it would cut into my future cashflow with a higher mortgage payment. Any help would be appreciated.

 HI Dustin,

Fannie has a Home Style Renovation product that you could use if you're going to live in there as a primary or if you buy as an investment.

Its much less restrictive than 203k full or streamline product from FHA and can be structured to have no monthly MI as well.

The pricing is about .50-.625% higher than a standard conventional in primary/investment pricing but that is the premium you pay to obtain rehab financing and acquisition in one vehicle with attractive 30 year fixed terms and rates.

If your rehab is minor at 30k or less you can probably get by with a FHA 203k and live in the property. I think the reason one uses a homestyle conventional product is because you want a more financially efficient vehicle, thats less restrictions on work, and has the ability to buy as a non owner or investment/second home (with conventional only, not FHA).

Buying rental properties is a great way to invest your money, but qualifying for a loan on an investment property is not always easy. Qualifying for a loan on an investment property is much more difficult than qualifying for a loan on an owner occupied home and will cost you more money.