FHA Loan to buy a Property

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FHA Loan to buy a Property

Willie Bradley
Morgantown, WV · Member since 2020 · 23 posts · 5 votes

Hello! I am looking for some advice. What are the positives and negatives for a FHA loan? Since I don't have much in cash ($600) I want to use that loan to buy a property. Particularly, an apartment. Any advice? I am new to all of this.

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Originally posted by @Wendy S.:

@Kristin Smith

I was just about to ask if this is true re FHA loans as I had a lender say something along those lines today but more like FHA borrowers with credit scores below 650 are ineligible at this time. First it was that they would have to pay more points to secure a rate now they are ineligible..

What's the real deal? @Chris Mason, maybe u can shed some light on this for us?

Long story short, the mortgage industry is imploding. Higher risk loans are evaporating by the week. Non-QM is done, lots of places are cutting off cash out refinances, bye bye to reno loans, HML are getting conservative, bla bla bla. FHA is on the chopping block.

https://www.housingwire.com/articles/is-the-coronavirus-about-to-wipe-out-fha-lending/

Markets are on pause until they get a sense for how many people will not be making their April 1st rent/mortgage payment. It'll take some time to process that data.

SFR owner occ good credit is still open for business without any panicking going on.

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  • Vincent Chan
    New to Real Estate · New York, NY · Member since 2020 · 22 posts · 16 votes
    6y

    Two negatives that come to mind for FHA loan are 1) you need to live there for at least 1 year and 2) you'll have to pay an additional MIP on top of your loan.

    1) shouldn't matter too much for you if you're buying property to actually live in.

    0Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    @Willie Bradley

    I just received word from my lender that FHA loans are suspended temporarily due to the Covid-19 situation. I'm not sure if it's all government home loans, or just renovation loans. Check with lenders to see what is available. FHA loans are a great option with low down payment IF you will live in the home for a year minimum.

    0Reply
  • Willie Bradley
    OP
    Morgantown, WV · Member since 2020 · 23 posts · 5 votes
    6y

    @Kristin Smith do you know of other alternatives from a lender if you are trying to buy a property not to live in but rent out?

    0Reply
  • Willie Bradley
    OP
    Morgantown, WV · Member since 2020 · 23 posts · 5 votes
    6y

    @Vincent Chan what if you are using it as an investment property?

    0Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    @Willie Bradley

    It depends on how many units in the apartment. If it’s 1-5, you can get a regular home loan but will have to pay 20% down if you don’t live in the property.

    If it’s more than five units, you’ll need a commercial mortgage loan. It will also require a 20% down payment and will have a higher interest rate.

    With a multifamily housing loan, the lender will take into account the rent you will receive per unit when qualifying you for the loan, so you can qualify for a higher loan amount.

    This is a great time to take advantage of lower interest rates, as rates have just gone down again this week. Will you need to renovate this property before renting it out, or is it ready to go? The financing would differ with each scenario.

    To find lenders, go to the BP marketplace on here and look for commercial or investment lenders. You can also seek recommendations here on the forums for commercial mortgage loan lenders. An online search will also give you options. Look for smaller local banks in the area of the property, they may offer portfolio loans with more flexible terms, rates and qualifications.

    I hope this helps!

    1Reply
  • Willie Bradley
    OP
    Morgantown, WV · Member since 2020 · 23 posts · 5 votes
    6y

    @Kristin Smith I am starting to look at properties in my area. But from my initial research I will rent as is.

    1Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    @Willie Bradley correction- I incorrectly stated you can get a residential mortgage for 1-5 units, it’s actually 1-4 unit dwellings that this applies to. Anything above four units is considered a commercial property. My apologies

    0Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    @Willie Bradley you’ll have an easier time with financing if no renovations are needed

    0Reply
  • Wendy S.
    Ellenwood, GA · Member since 2016 · 267 posts · 70 votes
    6y

    @Kristin Smith

    I was just about to ask if this is true re FHA loans as I had a lender say something along those lines today but more like FHA borrowers with credit scores below 650 are ineligible at this time. First it was that they would have to pay more points to secure a rate now they are ineligible..

    What's the real deal? @Chris Mason, maybe u can shed some light on this for us?

    1Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    Wendy-

    I was told by my loan officer that all were suspended. My credit score is way above 650 but still no FHA loan was available to me

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    6y
    Originally posted by @Wendy S.:

    @Kristin Smith

    I was just about to ask if this is true re FHA loans as I had a lender say something along those lines today but more like FHA borrowers with credit scores below 650 are ineligible at this time. First it was that they would have to pay more points to secure a rate now they are ineligible..

    What's the real deal? @Chris Mason, maybe u can shed some light on this for us?

    Long story short, the mortgage industry is imploding. Higher risk loans are evaporating by the week. Non-QM is done, lots of places are cutting off cash out refinances, bye bye to reno loans, HML are getting conservative, bla bla bla. FHA is on the chopping block.

    https://www.housingwire.com/articles/is-the-coronavirus-about-to-wipe-out-fha-lending/

    Markets are on pause until they get a sense for how many people will not be making their April 1st rent/mortgage payment. It'll take some time to process that data.

    SFR owner occ good credit is still open for business without any panicking going on.

    2Reply
  • Wendy S.
    Ellenwood, GA · Member since 2016 · 267 posts · 70 votes
    6y

    @Chris Mason.

    Thanks for your response and the article.

    0Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    Thank you for the info Chris! Hopefully things all stabilize sooner than expected. There is new hope since the FDA just approved the off-label use of some very common drugs that have shown great promise in treating Covid-19. Mass amounts of these drugs are already in use in New York and are headed to other areas for use as well. We may see a resolution to all this very soon! Those positioned to take advantage of the situation in real estate will do their part to stabilize the industry...

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    6y

    Good info @Chris Mason. Thank you for sharing. 

    0Reply
  • Wendy S.
    Ellenwood, GA · Member since 2016 · 267 posts · 70 votes
    6y

    So I just heard from another broker who said they also got an email yesterday but the guidelines stated a minimum 620 credit score.. 

    0Reply
  • Mark F.Pro Member
    Rental Property Investor · Northern NJ · Member since 2019 · 673 posts · 678 votes
    6y

    The bigger issue here is you say you only have $600 in cash. Is this to go towards a property plus your reserves or only this? It's great to use low money down options to purchase homes. I've done it twice and plan on doing it again.

    But like BP has been talking about lately, you need to have reserves. I have plenty and I don't mind leverage as I have a very secure W2. People have already mentioned the downsides of FHA. Not sure if anyone mentioned it but you'll be hard pressed to buy a fixer upper on this loan due to the inspection requirements. They'll make you or the seller fix small issues (peeling paint, uncalled lines, cracks in ceiling, etc) before you can close on the house. Good news is you can still buy out of date properties that are functional to add value. Plus some sellers dont like seeing low money down as they feel you have less skin in the game. These two are the biggest negatives to FHA.

    But please don't consider purchasing any property without some reserves. Vacancy, evictions, maintenance, breakdowns, etc.

    1Reply
  • Nate Walsh
    Property Manager · Manchester, MI · Member since 2019 · 7 posts · 4 votes
    6y

    @Willie Bradley I recently purchased my first home with an FHA. I bought a duplex with 3.5% down (minimum requirement). I now live in one half and rent the other. That was a pretty good option for me to start out and might be for you too.

    -You need to pay a little extra monthly for MIP

    -You only need to put 3.5% down

    -You still must pay closing costs

    -Legally you must live there for 1 year

    Maybe an example with numbers will help you get an idea of the cash amount you must still have. You can buy a cheaper home and pay even less cash than I had to.

    I purchased for 180,000 at 3.5% down and after closing costs I ended up paying about 7,000 out of my savings. Plus I have 1,500 saved for emergencies. Mortgage is 1,500. Rent for the smaller unit I rent is $800.

    0Reply
  • Willie Bradley
    OP
    Morgantown, WV · Member since 2020 · 23 posts · 5 votes
    6y

    @Nathan Walsh thank you for this!

    0Reply
  • Chris Ruggiero
    Palm Beach Gardens, FL · Member since 2016 · 9 posts · 1 vote
    6y

    I'm looking for information on FHA loans in the state of Florida. I currently own a duplex with an FHA loan in my name (house hacking). My wife and I plan on buying our family home in the near future. We'd like to finance the house with an FHA loan in her name. Is this allowable or can we only have one FHA loan because we are married and live together?

    0Reply
  • Kristin Smith
    Vermont/Tennessee · Member since 2018 · 25 posts · 29 votes
    6y

    That's tricky. I believe the short answer is yes. Have you and your wife already lived in the current FHA loan duplex for a year?
    The tricky thing is that for her FHA loan they will consider your credit and other financials when she applies because you’re married if you live together. Hopefully the lender in this thread can shed more light on this

    0Reply
  • Victor SoBusiness Member
    Real Estate Agent · Chicago, IL · Member since 2017 · 325 posts · 193 votes
    6y

    @Willie Bradley

    Several things come to mind:

    1) MIP

    2) You have to live in the property for one year.

    3) For a 3-4 unit property, you have to pass the self-sufficiency test.

    Also, $600 bucks probably won't be enough to close on a multi-unit. Closing costs can be fairly significant especially considering all the fees and MIP.

    Victor So Real Estate LLC517 Reviews
    WebsiteView Page
    0Reply
  • Caleb Smith
    Bakersfield, CA · Member since 2019 · 17 posts · 7 votes
    6y

    @Chris Ruggiero using your spouse on the future FHA would be a good strategy; especially if the current one is in your name.

    I'm currently trying to move from my current home (conventional mortgage) and apply for an FHA on a new property. I've struggled with lenders..... or should I say, finding the right lender. Many are questioning my intent to live in an FHA. You will need to justify good reason to move into the new property, based on what is "reasonable".

    I reached out awhile ago to BP forum and got some good information back....... I’ll hunt it down and post it here.

    0Reply
  • Caleb Smith
    Bakersfield, CA · Member since 2019 · 17 posts · 7 votes
    6y

    @Chris Ruggiero

    https://www.biggerpockets.com/topics/814771

    1Reply
  • Chris Ruggiero
    Palm Beach Gardens, FL · Member since 2016 · 9 posts · 1 vote
    6y

    @Caleb Smith thanks a lot for the reply. I haven’t posted much on BP and I didn’t realize I posted my question in the wrong place. I appreciate your help.

    0Reply
  • Chris Ruggiero
    Palm Beach Gardens, FL · Member since 2016 · 9 posts · 1 vote
    6y

    @Kristin Smith thanks for your help. Same as post for Caleb Smith.

    I’ll become more active on BP and learn to use it properly.

    1Reply
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