Getting Creative With FHA Loans

15 Replies

I have a great SFR deal lined up that would be perfect and generate some good cash flow down the road.

That said, I need the minimal down payment offered through an FHA loan to make this work and some of the FHA qualifications I can't meet. Specifically, the 2 year employment history. I'm a student so my full time employment has been subject to my class scheduling and my part time income isn't enough to meet the required income for the house.

The deal is GOOD. Good enough that I lined up two investors to handle the DP, some of the fix up costs, and pay part of my rent for the first few months.

With the 2 investor's huge cash backing, is there any way around the employment history while still keeping the FHA loan in my name?

Thanks!

Short Answer = I don't believe so.

Your JV Partners (or investors) are just that, non owner occupants. You being the owner occupant, will be accountable for all FHA qualifications. Forming an LLC or entity with your investors WON'T fix this issue either. Banks WON'T lend to LLC for FHA and most conventional loans.

I see no way for you to do this with FHA financing ....

If the deal is that great, and you want to try and make at least some $$$ on it, why not try wholesaling it to an investor?

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Originally posted by Bryan Hancock:
Can you get a cosigner? That may help on FHA...not sure.

Bryan ... wouldn't the cosigner have to be an OO as well though?

I remember doing my FHA loan about 7 months ago, and they asked if my fiance would be living in the property with me.

I'm not sure...that would be a good question for a broker. I would assume that they are worried about income stability so a cosigner would trump this requirement, but I don't know the rules.

Anyone?

I am in no way an expert on this subject but have been studying up on it myself. Here is a link to the hud handbook that details the requirements for obtaining an FHA loan: http://www.fhaoutreach.gov/FHAHandbook/prod/contents.asp?address=4155-1

In short, it is possible to obtain an FHA loan without 2yrs employment history if you can demonstrate that you are a student. Of course, you still have to show that you have the ability to pay the mortgage. The hard part will be purchasing the property as an investment property which is not allowed on FHA loans. One, but not all, of the borrowers needs to be an OO. If you will be living here initially and then move out, it may not be an issue.

Interesting Alex ...

It does seem Nic will be living their for atleast " for the first few months"

FHA = No as far as investors are concerned, but it looks like he may want to live there for a while. Assuming he is there for atleast a year, there should be no issues.

Thanks for the replies guys!

@ Alex- This EXACTLY what I've been looking for. After some research, a longstanding close relationship with a non-blood relative can still qualify for the Kiddie Condo Loan, which shouldn't be a problem proving with one of the investors who is also willing to cosign. I can't believe none of the lenders I talked to mentioned this. Most tried to get me off the phone when I didn't have 2 years of employment. I'm sure they get a ton of college students calling with pie in the sky house buying ideas

@ Steve- I should've clarified, I'll be in the house at least 6 mo. Part of the deal with the partners is that they would cover some of the monthly pmts the first few months. Wholesaling is definitely my backup plan but there's some meat on the bone and it would be a great first buy & hold given the location and a few other variables I haven't found in other houses in my area.

I'll keep you guys posted on the progress!

If anyone has any experience with the Kiddie Condo program definitely let me know!

Kiddie Condo is actually nothing more than FHA with a non-occupying co-borrower on the loan.

In the case of student housing, typically, the non-occupying co-borrower is the parent of the child and the student needn't have much income (or any). Instead, qualification would be based on the parent's income. But the student would sign all docs and be on the deed and the loan. And the student must meet the credit score requirements.

What's very important to know about FHA is that there are all kinds of rules and guidelines put out by HUD. BUT, in the end, the lender's underwriter sets their approval guidelines and are often more stringent than HUD. I know of lenders who will not approve a transaction for a non-occupying co-borrower where that co-borrower is not related. Used to never be a big deal back in the day. Not so today. Lenders are wary.

In trying to find a lender, don't focus on asking about Kiddie Condo. Instead, you want a lender who will allow a non-occupying, unrelated co-borrower on an FHA loan.

Ah, the Devil is in the details! Just had to say that.

True. However, there are two exceptions to the employment history requirements. 1. Is the borrowe has come off of active duty from the military (they could go VA, but they can also opt not to go VA and go FHA or Conventional. 2. A student graduating from college and who has a job (even a job offer) working in their major course of study. The second requires documentation that many loan officers and brokers are not familiar with evfolio requirements. even if they wanted to go down that road. The same rules hold true for conventional loans.

Underwriters have written requirements from the investors who buy the notes and portfolio requirements to meet as well. They will be responsible for the loans they approve in several ways.

Soas the Devil lady pointed out they may have requirements that exceed HUD, but they may not contradict them or even impede them. So, while each lender has some leeway they may not come about.

I suggest you look around for other lenders.....

Originally posted by Nic D.:
I should've clarified, I'll be in the house at least 6 mo.

One of the requirements of FHA as an OO is that you stay in the property for at least 1 year. If you leave early (with intent), it could be considered mortgage fraud.

Originally posted by Financexaminer:
Ah, the Devil is in the details! Just had to say that.

True. However, there are two exceptions to the employment history requirements. 1. Is the borrowe has come off of active duty from the military (they could go VA, but they can also opt not to go VA and go FHA or Conventional. 2. A student graduating from college and who has a job (even a job offer) working in their major course of study. The second requires documentation that many loan officers and brokers are not familiar with evfolio requirements. even if they wanted to go down that road. The same rules hold true for conventional loans.

Underwriters have written requirements from the investors who buy the notes and portfolio requirements to meet as well. They will be responsible for the loans they approve in several ways.

Soas the Devil lady pointed out they may have requirements that exceed HUD, but they may not contradict them or even impede them. So, while each lender has some leeway they may not come about.

I suggest you look around for other lenders.....

I like your humor.

So true.......far too many details and ifs, ands and butts.

Thanks for the responses guys!

Originally posted by Financexaminer:
Ah, the Devil is in the details! Just had to say that.

2. A student graduating from college and who has a job (even a job offer) working in their major course of study. The second requires documentation that many loan officers and brokers are not familiar with evfolio requirements. even if they wanted to go down that road. The same rules hold true for conventional loans.

Underwriters have written requirements from the investors who buy the notes and portfolio requirements to meet as well. They will be responsible for the loans they approve in several ways.

I suggest you look around for other lenders.....

This point alone took me 4 lenders to get a straight answer on.

After talking to a dozen or so lenders, I got some new information that's changed my gameplan a bit.

The Kiddie condo FHA aka non occupying co borrower loan only works for a SFH or a duplex if you're going for the FHA 3.5% downpayment (my goal). I decided to go bigger to capitalize on the biggest property possible for my one time FHA qualification. Because I'm graduating from school in a few weeks, I'm using the above exception to qualify without a non occupying co borrower.

I'll keep you guys updated with the progress

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Nic, just one more note.

You mentioned "one time FHA qualification."

A borrower can get as many FHA loans as they want - just only one at a time. Even then, there are a few exceptions.

Not sure how you intended that statement.

Alex is right, FHA does not do investment properties, however, there is another way around this. Why not scrap this deal and look for a duplex, tri-plex, or 4-plex and live in one of the units and rent out the others? FHA allows this, but you still have to show repayment capacity. The DTI front and back ends are a little less conservative than conventional loans and you still get to put a minimal down payment on the investment. Also remember that you eat into your profit margin substantially (depending on how good of a deal you get) when you are 95% leveraged up. Food for thought.