Looking for a lending advice for primary residence/house hack

10 Replies

Hey BP,

I'm in a little bit of a pickle and could use some advice.  I have been searching for months for a primary residence for myself, which has turned out to be a challenge due to the competitive market I'm in (Washington DC metro area).  

I've finally found a home I really like, in an area I want to be in, at a listed price within my range, that could turn out to be a perfect house hacking scenario.  The problem is that it's a Homesearch property going to auction this weekend and is a cash only sale.  My contact in hard money doesn't want to do an owner occupancy loan and has cited (though I'm not sure this is the only reason) Dodd Frank as a possible roadblock.  

Since the bank doesn't want to deal with financing, I don't want to bid, win and be unable to close. I'm envisioning a short-term loan for a couple months while basic repairs are conducted, then refinancing into an FHA loan. Any suggestions on how I could make this work? Property needs a master bath and cosmetic updating but is in otherwise pretty good shape.

When initially discussing this with the HML, I suggested dropping interest rates to avoid any conflict with HOEPA/Section 32 requirements, and having a side agreement whereby providing them consulting fees for my blossoming real estate business. Clearly, I'm open to creative solutions.

Any suggestions would be extremely helpful. Unfortunately, with the auction happening this weekend, I'm not left with much time to sort this out.

> My contact in hard money doesn't want to do an owner occupancy loan and has cited (though I'm not sure this is the only reason) Dodd Frank as a possible roadblock.

 He's saying it's harder to foreclose on you if you live there. 

> I'm envisioning a short-term loan for a couple months while basic repairs are conducted, then refinancing into an FHA loan. Any suggestions on how I could make this work?

Ya you tell the hard money guy you're going to flip it.

You decline to mention that you're going to flip it into your primary residence when you refinance FHA after it's in livable HUD-compliant condition, and the hard money loan is probably going to have things in it wherein you promise not to move in... those promises only apply for the life of THAT loan, they have nothing to do with future financing.

I'm not at work and do not have guidelines in front of me, but I'm pretty sure FHA will allow you to do a rate/term refinance to 96.5% LTV. Check with your go-to soft money lender, and run the entire scenario past her. I think the key word is FHA Secure, but don't quote me on that.

Honestly, it's been a while. That's what's in my brain. Go check with your go-to soft money mortgage gal with her guidelines in front of her.

Originally posted by @Chris Mason :

> My contact in hard money doesn't want to do an owner occupancy loan and has cited (though I'm not sure this is the only reason) Dodd Frank as a possible roadblock.

 He's saying it's harder to foreclose on you if you live there. 

> I'm envisioning a short-term loan for a couple months while basic repairs are conducted, then refinancing into an FHA loan. Any suggestions on how I could make this work?

Ya you tell the hard money guy you're going to flip it.

You decline to mention that you're going to flip it into your primary residence when you refinance FHA after it's in livable HUD-compliant condition, and the hard money loan is probably going to have things in it wherein you promise not to move in... those promises only apply for the life of THAT loan, they have nothing to do with future financing.

I'm not at work and do not have guidelines in front of me, but I'm pretty sure FHA will allow you to do a rate/term refinance to 96.5% LTV. Check with your go-to soft money lender, and run the entire scenario past her. I think the key word is FHA Secure, but don't quote me on that.

Honestly, it's been a while. That's what's in my brain. Go check with your go-to soft money mortgage gal with her guidelines in front of her.

Good insight Chris, much appreciated. I am hoping to refinance into a low-downpayment FHA and use the rest of my savings to invest. Thanks for your help.

Usually when you sign hard money loan docs there will be affidavit's that state you intend to use this property for business or investment uses (to avoid dodd frank). It sounds like your scenario is both investment/business and potentially primary use. Just make sure that when you refinance out into FHA/conv/ or VA financing that you have moved in prior to the appraisal otherwise your occupancy will be questioned.

By signing off on that the property as business use the hard money lender will now be willing to lend you money as they have enough documentation to protect their loan position  in the event of default and you now have a property you would otherwise would not have had an opportunity to purchase.

You could then fix it up and move into it and take out (refinance) the hard money lenders position like Chris mentioned above. Or you could take out the hard money lenders position as an investment property or second home depending on your future intended use for the property. Different intended uses will affect your loan scenario such as a higher appraisal value will be needed or a lower loan to value will be allowed on an investment or second home refi rather than a primary residence refi.

Originally posted by @Albert Bui :

Usually when you sign hard money loan docs there will be affidavit's that state you intend to use this property for business or investment uses (to avoid dodd frank). It sounds like your scenario is both investment/business and potentially primary use. Just make sure that when you refinance out into FHA/conv/ or VA financing that you have moved in prior to the appraisal otherwise your occupancy will be questioned.

By signing off on that the property as business use the hard money lender will now be willing to lend you money as they have enough documentation to protect their loan position  in the event of default and you now have a property you would otherwise would not have had an opportunity to purchase.

You could then fix it up and move into it and take out (refinance) the hard money lenders position like Chris mentioned above. Or you could take out the hard money lenders position as an investment property or second home depending on your future intended use for the property. Different intended uses will affect your loan scenario such as a higher appraisal value will be needed or a lower loan to value will be allowed on an investment or second home refi rather than a primary residence refi.

 Excellent advice, thanks for spelling that out for me.  One question: do you think I shouldn't even mention that I'm looking to make it a primary residence?  I'm all for creative solutions but my mom would be proud of me for saying that would weigh on my conscience a little. 

Originally posted by @Marc M. :
Originally posted by @Albert Bui:

Usually when you sign hard money loan docs there will be affidavit's that state you intend to use this property for business or investment uses (to avoid dodd frank). It sounds like your scenario is both investment/business and potentially primary use. Just make sure that when you refinance out into FHA/conv/ or VA financing that you have moved in prior to the appraisal otherwise your occupancy will be questioned.

By signing off on that the property as business use the hard money lender will now be willing to lend you money as they have enough documentation to protect their loan position  in the event of default and you now have a property you would otherwise would not have had an opportunity to purchase.

You could then fix it up and move into it and take out (refinance) the hard money lenders position like Chris mentioned above. Or you could take out the hard money lenders position as an investment property or second home depending on your future intended use for the property. Different intended uses will affect your loan scenario such as a higher appraisal value will be needed or a lower loan to value will be allowed on an investment or second home refi rather than a primary residence refi.

 Excellent advice, thanks for spelling that out for me.  One question: do you think I shouldn't even mention that I'm looking to make it a primary residence?  I'm all for creative solutions but my mom would be proud of me for saying that would weigh on my conscience a little. 

 I dont think the hard money lender cares as long as they have all their proper disclosures signed to protect their interest and your deal has enough equity to support their guidelines.

As to whether you should tell them it might be a primary, thats a grey area or unspoken of. 

Originally posted by @Albert Bui :
Originally posted by @Marc M.:
Originally posted by @Albert Bui:

Usually when you sign hard money loan docs there will be affidavit's that state you intend to use this property for business or investment uses (to avoid dodd frank). It sounds like your scenario is both investment/business and potentially primary use. Just make sure that when you refinance out into FHA/conv/ or VA financing that you have moved in prior to the appraisal otherwise your occupancy will be questioned.

By signing off on that the property as business use the hard money lender will now be willing to lend you money as they have enough documentation to protect their loan position  in the event of default and you now have a property you would otherwise would not have had an opportunity to purchase.

You could then fix it up and move into it and take out (refinance) the hard money lenders position like Chris mentioned above. Or you could take out the hard money lenders position as an investment property or second home depending on your future intended use for the property. Different intended uses will affect your loan scenario such as a higher appraisal value will be needed or a lower loan to value will be allowed on an investment or second home refi rather than a primary residence refi.

 Excellent advice, thanks for spelling that out for me.  One question: do you think I shouldn't even mention that I'm looking to make it a primary residence?  I'm all for creative solutions but my mom would be proud of me for saying that would weigh on my conscience a little. 

 I dont think the hard money lender cares as long as they have all their proper disclosures signed to protect their interest and your deal has enough equity to support their guidelines.

As to whether you should tell them it might be a primary, thats a grey area or unspoken of. 

Unfortunately, my primary HML did care, though I get what you're saying. I think they were probably just being extra cautious. I appreciate your feedback.

Originally posted by @Marc M. :
Originally posted by @Albert Bui:
Originally posted by @Marc M.:
Originally posted by @Albert Bui:

 Excellent advice, thanks for spelling that out for me.  One question: do you think I shouldn't even mention that I'm looking to make it a primary residence?  I'm all for creative solutions but my mom would be proud of me for saying that would weigh on my conscience a little. 

 I dont think the hard money lender cares as long as they have all their proper disclosures signed to protect their interest and your deal has enough equity to support their guidelines.

As to whether you should tell them it might be a primary, thats a grey area or unspoken of. 

Unfortunately, my primary HML did care, though I get what you're saying. I think they were probably just being extra cautious. I appreciate your feedback.

Mr. HML is going to have zero trust in you until you've got a done deal or two with him.

You should also have zero trust in Mr. HML to start with.

Originally posted by @Chris Mason :
Originally posted by @Marc M.:
Originally posted by @Albert Bui:
Originally posted by @Marc M.:
Originally posted by @Albert Bui:

 Excellent advice, thanks for spelling that out for me.  One question: do you think I shouldn't even mention that I'm looking to make it a primary residence?  I'm all for creative solutions but my mom would be proud of me for saying that would weigh on my conscience a little. 

 I dont think the hard money lender cares as long as they have all their proper disclosures signed to protect their interest and your deal has enough equity to support their guidelines.

As to whether you should tell them it might be a primary, thats a grey area or unspoken of. 

Unfortunately, my primary HML did care, though I get what you're saying. I think they were probably just being extra cautious. I appreciate your feedback.

Mr. HML is going to have zero trust in you until you've got a done deal or two with him.

You should also have zero trust in Mr. HML to start with.

 Fair point.  It is someone I have a relationship with though but you're right, we haven't done a deal together yet.