Tenant wants to pay late rent with FHA home loan??

Question

My property manager informed me that a tenant with late rent wants to catch up on rent with proceeds from an approved FHA home loan.  My immediate reaction was "B***S***, that's not possible".  So I had the property manager tell the tenant they have 1 week to get that in writing from the bank before we start proceedings.

But I thought, just possibly someone on BP knows more about this.  My assumption is that an FHA home loan only goes toward the purchase of a new home during a purchase closing- I don't believe it is an actual check that a homebuyer can carry around and spend on whatever they like.  Am I wrong?

Joe Splitrock · Answer

@Daniel Hanson I am surprised nobody else is calling out the property manager on this one. Their job is to wade through the BS, not to repeat it to you like it makes sense. More importantly it is totally immaterial if they are getting a loan or not. Keep it simple. Rent is due and either it is paid or it is not. If it is not paid, then the tenant needs to leave. That is what your PM should be saying to them.

Deanna McCormick · Answer

they could negotiate cash back from seller at time of sale.

But if I were you I'd file for eviction, you have no guarantee of what's going on.

Daniel Hanson · Answer

@Jeff Brower @Mindy Jensen @Chris Mason

Thanks for the other advice from all.  We will be proceeding through the notification and eviction process.

Mindy Jensen · Answer

What @Jeff Brower said. Post your pay or quit, then follow through with the eviction process.

Jeff Brower · Answer

Your initial reactions are correct. I wouldn't give them a week for anything and proceed with pay or quit as soon as able as normal.

Daniel Hanson · Answer

agreed @Joe Splitrock

I won't discuss in this thread, but I'm addressing that as well.

Greg H. · Answer

Cash back from the seller is not permitted via an FHA loan

Chris Mason · Answer

FHA does cash out refinances on primary residences, up to 85% LTV in some cases.

But if he is a tenant of yours with a normal tenant-occupant lease, and simultaneously telling a mortgage lender that 123 Main St is their primary residence... obviously he's lying to someone.

It is possible that as a typical consumer who only gets 3 or 4 mortgages in their entire life, he's saying "FHA" for God Knows What reason, when in reality it's a conventional cash out refinance on an investment property. Nope, it's not at all crazy for a tenant to own investment properties or (technically this next one is fraud) a property they purchased in their name as an owner occupant for their cousin Billy to live in (1st/2nd gen immigrants often do this, or at least try to, sometimes without even realizing this is fraud... and then I say something like "Uh, your LO and agent when you, who speaks English as a second language, purchased this place, that you now want to refinance, told you WHAT?!?!").

Either way, ask him for a copy of his Loan Estimate. Those typically go out within 3 days of someone calling and saying "Hi Mr. Lender, I'd like to do a cash out refinance." And then within about two weeks, he should be able to show you an email from the loan originator saying "grats, your loan has been conditionally approved, here are your conditions: ..." --- this is basically what listing agents ask for (the borrower must give written permission to the lender) when they aren't sure a buyer is really moving forward, or if the offer was accepted with my preapproval letter and they want to make sure the buyer isn't switching to a 1-800 number.

Big picture, 'cash out refinance to pay my bills' is not the mark of a financially stable person. That should  be a 'once in your life due to a family emergency thing,' not a normal routine way to pay rent. So I'd suggest evaluating if you think this is a one-time emergency (people get sick, companies downsize, etc), or irresponsibility.

Daniel Hanson · Answer

agreed @Christopher Phillips - it just doesn't make sense.

As far as I know they don't have any property currently.  Can an FHA loan be done as a refi, as you mentioned, or strictly on the purchase side?

Christopher Phillips · Answer

@Daniel Hanson

Doesn't really make sense. How are they buying property with an FHA loan and expecting proceeds? Only thing I can think of is that they have a property with equity and they are going borrow against it.

Tenant wants to pay late rent with FHA home loan??

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