Newbie with Student Loan Debt: FHA, 203K, Conventional or SBA?

Question

Thanks for any advice you can provide!

I have $15k available for down payment and closing costs. My DTI is decent thanks to a solid salary (with 8-year history), BUT I want to escape CA sky-high property prices, quit my job, move across the country (to either AL, FL, GA) and start fresh with a 4-plex (will live in one unit to qualify for FHA and low down payment). My understanding is that the income from 3 units of the 4plex can count towards my DTI, but since my full-time job is going away and I have high student loan debt (currently about $1200), it won't look good after the move. I have 0 other debt besides the student loan, and my credit score is about as high as it can get. I do have some freelance income to show, but not that much because it's only been a side-job test to see if it will work once I quit my job. Once I go full-time freelance, I anticipate being able to bring in about $4500/month in addition to the rental income. My husband works in construction, and we anticipate being able to save on upkeep/maintenance/rehab costs with his sweat equity.

As I see it, here are the options:

1- get a full-time job in the new town (but I won't have a 2-year history with it - so might not work)

2- enroll in school full-time in the new place, loans go into deferment status (I read this was a loophole, and I do like the idea of continuing my education), hopefully qualify for FHA or FHA 203k

3- go conventional with less expensive property (keep my job in CA and hire a property manager)

4- quit my job, purchase a small motel using SBA 10% down loan and live in the manager's unit

5- suck it up and stay in CA, use my salary to qualify for a property here (but down payment is then a hurdle)

The properties I'm looking at in AL, FL, GA are all in the sub-$250k, many would pay for themselves plus provide $700-$1000 monthly cashflow after all expenses.

Are there any other options I haven't considered? Any advice/thoughts are appreciated. Thank you!

Josh Day · Answer

@Nicholas Covington as a LO, how do you look at healthcare workers that work PRN. I've read that it needs to show 2 years of PRN work. I plan on working a full time job for a year while working PRN 1-2 days/week to qualify for a house. Then switching to solely PRN work. Would that time working PRN 1-2 days/week count for 1 of the 2 years working PRN so that I could qualify for another loan in 1 year?

Nicholas Covington · Answer

@Maria Renee

Hello!

#1. Like Chris stated you just need to remain in the same field/industry in order to meet the income qualifications. So if you got a new job in the related field you would need to wait about a month (depending on lender and loan program) to get your 2 pay stubs to provide.

#2. Deferred student loans will still be taken into account at 1% of balance monthly DTI rate. It used to be that if the loan would be deferred for 12 months or more that it did not need to be counted in the DTI. I have yet to see anything in my reading of guidelines on a daily basis that states that this is still a thing. So going back I will stand by the 1% of balance still will be a factor.

#3. This could be an option if the numbers come out right, but probably no better than if you were going FHA route and house hack.

#4. The words "quit my job" make me cringe as an LO, those are the last things I want to hear. Your loan will get tossed out faster than you typing the email to your boss about your two-week notice. No job = no income, no income = no loan. Granted your husband works, but construction is another cringe-worthy word as well since income can be all over the place depending on how he is paid.

#5. Ehh, don't really have an answer for that one since you used the words "suck it up." I wouldn't want to be in a position where I felt like I would be settling or doing something that would not really bring me happiness. Just my opinion of course.

Hmm...other options, other options, other opti...Oh ya! How long have you been a renter? The better question is have you owned a home within the last 2 years? Potentially you could qualify for a first time home buyer program which would allow you to put down a lower downpayment. These programs are kind of specific to the lender, but they are out there!

That's all I got. Good luck!

Nick

Maria Renee · Answer

Thank you, Chris! This is really great advice.

I love your tips on option #1.

Option #5: I am currently a renter in CA, so I don't know that I can use your refi tip... unless you're talking about refi on the new CA property before I purchase it? How does that work? Is that a hard money / refi deal?

I'm so excited to get started with REI, I hadn't even considered renting in the new location first. Wow - a new perspective can be so valuable!

Chris Mason · Answer

Hi @Maria Renee,

Property taxes are actually lower in CA than most other states once you've owned it a few years, thanks to Prop 13.

For #1, two year history is not needed as long as the career progression makes sense and it's a full time or salaried gig wherein you do not have an ownership interest in the business. If you go to newly full time freelance, the historical freelance income on your tax returns can be used to check the two year box, especially if it's some sort of internet gig where your location is not relevant.

For #5, to overcome the down payment hurdle, run numbers and see if it'll still cashflow in a way that makes sense to you after doing a cash out refinance. It'll be a little less than $250/mo for every $50k in additional debt you take on, and cash out refinances do not impact property taxes in California.

I'd suggest moving, renting, getting settled, getting to know the lay of the land and neighborhoods (go be a looky loo at open houses), and buying in a few months or a year. We read way too many horror stories about folks that bought out of state into a D neighborhood that was promoted to them as an A/B neighborhood!

Newbie with Student Loan Debt: FHA, 203K, Conventional or SBA?

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