203k Loan Questions in Los Angeles

20 Replies

Hello there!

I am looking into doing a 203k loan for the first property I purchase for my wife and I (she's a trooper), I am looking into finding a multi family property, fixing it up, and doing a refi when the time is right. However I don't even know where to begin when it comes to finding these types of lenders, what to talk with them about, and once I am qualified for the loan where to find the types of properties I am looking for. My wife and I have above 750 credit, not great assets (just married, straight out of college, stoked on RE), but putting money away with the intent on carrying out this strategy which we believe we will be ready to start in the next 12-14 months.

Any thoughts or ideas would be welcome!

Have you thought about investing out of state?

Hi Bradford,

There are many lenders out there that specializes in the FHA 203K loan for folks like yourself whose looking to buy a property that requires some work. Normally these homes aren't qualify for FHA financing due to condition of property and a FHA 203K streamline would be useful. The key here is finding the lender who specializes in this loan. They will fill you in on the ins and out of the loan process, contractor bids and rehab constructions of the deal. To find these types of deal, surprisingly you'll find them on the MLS all the time however, they probably are priced out once it hits the MLS. You'll probably get better deals when they are listed for a long period of time and the seller is looking to exit. What I'm not too clear on is whether you're looking to refi out and take your initial capital investment back out or refi to a better rate and term. Most of the time a FHA 203K streamline loan is already low in rates and so if you're looking to cash out refi and get your initial investment out, you'll definitely need to buy at a nice discount to achieve that. Hope this helps and good luck. Duplexes or multi-fam will allow you to reap the benefits quickly...

Bradford, Great to have you here on bp. Question you are in a very hot market, what do you need to wait so long to get started?

Another great product to look at besides the 203K loan would be the FannieMae HomeStyle Renovation program. This mortgage provides an easy way for borrowers looking to purchase a home that are considering home improvements to make repairs and renovations with a first mortgage.

@Antoine Martel

Absolutely! The 203k strategy is one that I think would compliment a turnkey buy and hold strategy well and give me full exposure to the investing world off the bat. 

Feel free to PM me, I'd love to hear more about what you are doing and if you have any ideas!

@Yia Her

Thank you the clarifies it a bit, do you know of a good resource to look these lenders up on? I am sure the properties might be a bit harder to find, however once they are found they are great. I was thinking to Refi, rent the unit I was living in, and go do another 203k (I believe you can only have one at a time). Duplex/Multifam is where I want to be!

@Steve Haight

Great to be hear and great to be in touch with you! Couple of reasons to wait, mostly personal. My wife and I enjoy where we are now and are working to save up a down payment for a project like this (being straight out of college I am still working on this whole cash assets thing). Do you have any ideas for creative financing a deal like that? 

I was thinking maybe seller finance, private lending, etc... what are your thoughts?

@Tyler Delbert

That is an interesting idea that I had not considered (nor heard of before), looking at it on their website right now. Have you used this before and if so what was your experience with it?

@Bradford Ortlund

Yes, this is something we’ve been marketing pretty heavily recently. We’ve partnered up with a few contractors and there is certainly a market out there for this product. Seeing that it’s a rather new product, we have not gone through the entire loan process for a FMHSRP yet, but we have begun the process with several new borrowers and we are definitely learning day by day. It’s a longer process than a typical purchase or refinance, obviously as there are more parties involved, however it’s a great product as I’m sure you realized being able to read a little bit about it on their site. Feel free to PM me if you have any further questions i can answer and go into detail about.

Originally posted by @Bradford Ortlund :

Hello there!

I am looking into doing a 203k loan for the first property I purchase for my wife and I (she's a trooper), I am looking into finding a multi family property, fixing it up, and doing a refi when the time is right. However I don't even know where to begin when it comes to finding these types of lenders, what to talk with them about, and once I am qualified for the loan where to find the types of properties I am looking for. My wife and I have above 750 credit, not great assets (just married, straight out of college, stoked on RE), but putting money away with the intent on carrying out this strategy which we believe we will be ready to start in the next 12-14 months.

Any thoughts or ideas would be welcome!

I assume this is a house for you & your wife to live in as I am not aware of any non owner occupied 203k loans. You don't need or want to refi it out later anyway. There won't be anything to refi out as you can get into it for almost no money down (3.5%) using an FHA loan.

@James Wise

Hi James,

Thank you for commenting! I had a clarifying question about it. Yes, it would be a place for my wife and I for a year or two ( I was thinking a duplex/triplex), however when you say that I wouldn't need/want to refi out what were you referring to? My impression was that i would be able to renovate the property, up the value, refi once the value was up. Of course it would depend if I could find a property at a good enough deal in my area.

What were your thoughts?

Also, I was recommended your investment property group by a friend of mine and I love the videos you guys put out! As a newbie I've found them very informative especially regarding the larger Cleveland area since I am not local. 

@Bradford Ortlund

Make SURE that you utilize the 203K Loan through FHA before you do any other loan in your area.

I found out the hard way that if you already own a property then you will not be able to get an FHA Loan if the property is literally within 100 miles.

Originally posted by @Bradford Ortlund :

@James Wise

Hi James,

Thank you for commenting! I had a clarifying question about it. Yes, it would be a place for my wife and I for a year or two ( I was thinking a duplex/triplex), however when you say that I wouldn't need/want to refi out what were you referring to? My impression was that i would be able to renovate the property, up the value, refi once the value was up. Of course it would depend if I could find a property at a good enough deal in my area.

What were your thoughts?

Also, I was recommended your investment property group by a friend of mine and I love the videos you guys put out! As a newbie I've found them very informative especially regarding the larger Cleveland area since I am not local. 

 If you & your wife are living in there what are you gonna pull out? Your only putting 3.5% into it. How big of a renovation are you folks doing here? Interest rates are climbing. I see no benefit to pulling out as the amount you could pull out would be minimal with the increased transaction costs you will incur with another loan. On top of that the new loan will be at a presumably higher interest rate. Not to mention you'd be back to square 1 on that amortization schedule.

As for your liking of our videos thank you sir. Glad that have provided value to you. It's always great when fellow investors share the love. 

@Brian Garlington

That's a good point and I will keep that in mind in my area, I believe you can only have one FHA loan at a time? I may be wrong though and would be interested to be proven right/wrong on that.

@James Wise

I may be mistaken but wouldn't the equity grow through the renovation? I feel like I am missing something here, Isn't this technically what BRRR investors do if they buy a property at a good deal below market value?

Originally posted by @Bradford Ortlund :

@James Wise

I may be mistaken but wouldn't the equity grow through the renovation? I feel like I am missing something here, Isn't this technically what BRRR investors do if they buy a property at a good deal below market value?

How much of a renovation are you doing? Most BRRRR is done with an investor paying cash. With the hope that by the time they pull out they end up with less than 25% of their cash into it. You are financing almost 100% of the investment.

@James Wise I see what you're saying. My thought/hope would be the reno would add a lot of value, however that is optimistic the more I work out the numbers. 

Originally posted by @Bradford Ortlund :

Hello there!

I am looking into doing a 203k loan for the first property I purchase for my wife and I (she's a trooper), I am looking into finding a multi family property, fixing it up, and doing a refi when the time is right. However I don't even know where to begin when it comes to finding these types of lenders, what to talk with them about, and once I am qualified for the loan where to find the types of properties I am looking for. My wife and I have above 750 credit, not great assets (just married, straight out of college, stoked on RE), but putting money away with the intent on carrying out this strategy which we believe we will be ready to start in the next 12-14 months.

Any thoughts or ideas would be welcome!

HI Bradford,

Most lenders can do the 203k FHA streamline or full K / standard program or the home style conventional loan program.

The problem is most have not done a rehab loan program or have construction experience  or the process on the lending paperwork side.

There is quite a bit of paper work such as:

- scope of work + revised scope of work or adjustments

- consultant review depending on the depth of your construction project and work being done

- resume for contractor

- certain lenders have requirements for contractor experience such as you cant GC (general contractor) your own project and such

- reserves or margin of error in the project such as the 35k streamline 203k loan which only leaves about 28-30k of actual construction cost with the remaining 5-7k for reserves and contingency

- only 203k standard FHA can finance your carrying costs (so you dont have to make a mortgage payment during your 6 months of construction)

- Home style conventional rehab loan cannot have a project that is more than 50% of the after improved value (meaning your rehab cannot be 250k on a 450k valued project after you finish) youd have to lower your rehab to 225k or less in this example) This is not limited on 203k products

- much more

After the construction details and process theres the typical financing aspects which include regular FHA or conventional qualification guidelines.

The rule of thumb though is to qualify for way more than you need or to do a max purchasing power assessment to see how much borrowing power we have to ensure we have enough room to budget for the 1) purchase, 2) rehab / construction budget, 3) reserves and contingency budget to fit in loan approval criteria.

Let me know if you have any questions on what to look out for.

@Albert Bui On your point regarding a project that is more than 50% of the ARV, would an example be purchasing a home at 200k and if the ARV is 400k they would state that the repairs could not exceed 200k in rehab costs?

Also, how do you go about doing a max purchasing power assessment? I've heard about getting these done and haven't seen a traditional lender advertise that as a service. 

Feel free to PM me, I'd like to know more about the types of lending you do and how you got into investing yourself!

Originally posted by @Bradford Ortlund :

@Albert Bui On your point regarding a project that is more than 50% of the ARV, would an example be purchasing a home at 200k and if the ARV is 400k they would state that the repairs could not exceed 200k in rehab costs?

Also, how do you go about doing a max purchasing power assessment? I've heard about getting these done and haven't seen a traditional lender advertise that as a service. 

Feel free to PM me, I'd like to know more about the types of lending you do and how you got into investing yourself!

Yes that’s correct Brad regarding max of 200k no more in that example.

Purchase power assessment is done by reviewing your full file similar to a pre approval but instead of qualifying for a specific. Property we just determine how much free income you have assuming 45-50% DTI to qualify with given your current income, credit, income, liabilities.

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