Avoiding FHA loans through community banks

3 Replies

I'm still in the process of learning about investing and banking money. Is it possible to avoid FHA loans even with low money down (3.5-5%) by going through community banks? I know there's a lot of talk about how community banks are more likely to loan to investors. I'm willing to go the FHA route if I can find a duplex or house with another living area, but if I could find a great deal on a single family dwelling for an investment property, would it be possible to avoid an FHA loan without 20-25% down?

there are conventional loans with 3-5 or 10% down Why don't you make an appointment with a loan officer in your area and go over your options based on your credit and income profile ?

I plan on doing that. I'm just wanting other opinions on this subject. I met with a loan officer from Union Home Mortgage a while back, but they don't do conventional loans without the 20+ down. 

@Chris Hayes just to answer your question, yes, you can avoid FHA loans with low down payment options. FHA loans are for homes that you plan on occupying. So if you plan on occupying the property there are other options that will have low down payment options with them.

But if you were planning on buying a property that was not your primary home, you can't use FHA money anyway. If that's the case, you would need to be prepared for 15% down minimum on a Single Family Home. If you were buying a duplex, then you would need to be prepared for 25% down. Those are "conventional" rules. This is not a bank choice. This rule comes from Fannie Mae and Freddie Mac (if you recognize those names).

A "Conforming" loan is a loan governed by Fannie Mae and Freddie Mac. You can this same loan from any bank. The rules to Fannie/Freddie loans is that you have to loan in a person's name. 30 year fixed rates here with a lower rate than other loan types. The rates and terms are better for these loan types but there's not much flexibility for the bank to make a decision - since it's not their money. However, most banks will place "overlays" on top of Fannie/Freddie rules to limit their risk. Specifically in your case, a bank could say "we want 20% down minimum" but the rule is 15% down...that is a bank overlay. Try to seek out banks that are smaller to mid-sized in nature for a higher success of banks with no overlays.  That's why investors speak about smaller banks so much.  NO OVERLAYS!

Now another loan type is a "Portfolio" loan.  A portfolio loan is a loan that comes from the bank's own portfolio of money - thus the name. So the bank makes the call. These loans could be easier to qualify for but the terms are different than a conventional loan. Sometimes the rates are adjustable, sometimes they are higher rates, sometimes these are 15 year loans....and often they are all three of these. And since the bank makes their own decision on their own money...each and every bank will have slightly different loan rules. You would literally have to call each and every bank to find out the rules to each and every portfolio loan out there. So they might need only 10% down to get you in a SF property.  Or maybe 15% down for a 2-4 unit.  They COULD have those rules.  but you would need to call a lot of banks to find out.

I hope I didn't overwhelm you hear but I do hope this helps you in becoming more knowledgeable on this subject so you know what to expect.  Good luck!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here