Hi, I am looking to get started in RE, specificaly by househacking or a buy & hold strategy. However, i don't have a lot of funds saved and my credit is a work in progress. Is it advisable and even possible for me to obtain a conventional mortgage if I have less than stellar credit? Is there another way to go about this, are there other financing options?
Also are you required to disclose that you are purchasing investment property to the bank or seller when buying a property?
I hope not. We already went through one worldwide recession from irresponsible lending and borrowing practices. Your best bet is seller financing or private lending...while working on credit, cash reserves, and deal flow pipeline. Real estate is a long game anyway...just stick with it and you won't be disappointed. Good luck.
For owner occupied, minimum credit scores required....fha 620ish, conventional 675ish....along with adequate cash for down payment and closing costs, and enough income (debt to income ratio) to qualify.
@Mike Dymski I appreciate your honest opinion. I'll look into the seller financing options. For full disclosure, just because I feel like others will mention this, my credit score is in the low 600's (so not horrible). It's the lack of credit history, like never having a credit cards etc.. I'm working on building that now, along with a cash flow pipeline for investments.
@Wayne Brooks Thank you, I think an FHA may be the way to go, I'll look into it a bit more.
I’m not sure if it’s possible and it might not be advisable either. The cost of borrowing money will be very expensive whether it’s conventional, private or other.
For someone just starting out, you might need a little more cushion with your numbers than someone with more experience so your margins will already be thin.
With all that said, maybe consider partnering up with someone you know and trust to get your feet wet? Maybe they bring the capital and/or the credit score, you bring the hustle and grind of finding a great deal. They bring the experience and capital, you find a great deal etc.
@Kyle Smith I appreciate your advice. I have been looking into possibly partnership opportunities.
@Sandra Kourouma this would depend on what "less than stellar credit" actually means. There's a lot of misinformation concerning this subject so I'll try to set some records straight here.
- FHA loans - FHA loans don't actually HAVE a credit score minimum. There is no verbiage in their guide on what the credit score minimum would be. The credit score minimum actually comes from the lenders in the form of what we call an "overlay". Overlays are rules that lenders put OVER the lending guidelines. Some lenders might say "we require 620" and some might say "we require 580". So your score is important but so is what's going on with your score to make it low. So even if your score "qualifies" you will still need reasonable history to show that your repayment history is feasible to lend on.
- Multi-Family properties - FHA are a great loan type to purchase multi-family homes that you can house hack. And they are a lot more flexible than Conventional (Fannie/Freddie) loans and the down payment minimum is 3.5%.
- Downpayment Assistance Programs - downpayment assistance programs (sometimes referred to as "first time homebuyer" programs....although many don't require you to be buying your first property) do help many people buy their first home by paying downpayments and/or closing costs. However, many WILL require a minimum credit score and many WON'T allow you to buy a multi-unit property. Just something to think about as you analyze what property is best for you to purchase.
Lot's to know about for sure but hopefully this helps in some way. Thanks!
find the right lender. We do them all the time FHA with 3.5% down with credit score in the 580-620 range. You can get an FHA with credit score being below 580 but they require 10% down and 6 months of reserves. 580- to 620 range they usually just require 1 month of reserves. This is a lender I use. You also can't have any late pays in the past 12 months.
@Andrew Postell Thank you for being so thorough in your response. This has been the most helpful response yet.
To answer your question, when I say let's than stellar credit it's in the low 600's, however I'm actively working on building it up. I've been thinking about going the FHA route, once I have a decent amount saved up of course for a down payment. So I'm happy to read that, it's an option. It's good to know that all hope is not lost!
@Tim Johnson Good to know, thank you. I'm working on saving for a downpayment, once I have my desired amount, I'll try my luck.
It won't hurt to call lending brokers and see where you are and where you need to be. There are many programs especially for first time home buyers. An FHA may work based on your current credit score. As long as you have a job/income, can show two years of W2, have some cash for a down payment and closing costs, a few months of bank statements and can afford the payments. Good Luck!
@Sandra Kourouma What are you doing to build credit? If you can qualify for a credit card I'd get one. Spend money on it and pay it off every month. Don't miss a single payment! You can build credit extremely fast and get a conventional loan to purchase property.
I have two credit cards and it spring boarded my score in last 2 years. I also paid off an auto loan so that helped. Good luck!
1. No idea about the areas surrounding NY,NY but I'm under the impression that is a really difficult market to succeed in. If possible, you might want to consider moving
2. Go ahead and reach out to mortgage brokers in the area, they’ll be able to give you a good answer of what credit you will need, how much of a down payment, etc. for different properties.
@Sandra Kourouma I used an FHA to fund my first house hack deal. It is great, low down and a pretty good rate at 4.5%.
The property cash flowed more then $1200 with that loan before we refinanced.
@Sandra Kourouma As others mentioned, it's pretty easy to open two $500 secured credit cards. Pay them off every month, and provided no other lates, I don't see any reason why your score wouldn't be over 700 within a year.
@Anthony Rosa I wanted to wait until I had the right amount for a downpayment before sitting with a lender. However, I think you're right, it wouldn't hurt to sit with a lender to see where I stand. Thanks.
@Tom S. I did this just a few months ago, I have two CC's and monitoring my credit. My score seems to be on the right track, now I'm just focused on saving for the downpayment.
@Steven Wilson Awesome. I'm hoping this works just as well for me. Thanks.
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