Which loan to get for newbie who want to flip

Annapolis , MD · Member since 2016 · 11 posts · 3 votes

Any advice on how to get approved for a loan that will incorporate my mortgage and the renivation in the same loan. Is that a thing, or will I have to come out of pocket with the rehab.

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Michael Lee

Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes

10y

Hello and welcome to BP! There AE several ways you can go. You can be a "house hacker". You can get a hard money loan. You can find a Partner. You can get a Private Money loam. Or you can get a conventional loan which will cost you up front. Be flexible and a hustler. A good deal will go with you any way you choose. Just take action and be a good presenter. Sound like you know what your doing. Always do your analysis numbers and try to look at the property before you make an offer but be quick as you can. Good luck!

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Matt Rosenbohm
Real Estate Investor · Greeley, CO · Member since 2015 · 23 posts · 8 votes
10y
Hey Joseph, Are you planning to occupy the property or flip it for a profit? Either way, there is a loan called 203k. It is an FHA renovation loan that does exactly what your looking for. The only catch is that this loan is meant for owner occupants, people buying the home as their primary residence. If you're new to flipping, maybe the best way to start is to buy a primary residence with this type of loan and rehab it. The only thing you need to be aware of is that there are time restrictions. Since you will be buying it as your primary residence (the loan requires this) you are required to stay in the home for a certain period of time before you can resell it. You'll need to talk to a loan officer to get more details on the timeline and qualifications. If you're starting from scratch and do not have a lot of capital this could be a great option. Best of luck to you!
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OP
Annapolis , MD · Member since 2016 · 11 posts · 3 votes
10y
Wow thank you very much!!!
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Michael Lee
Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
10y
Hello and welcome to BP! There AE several ways you can go. You can be a "house hacker". You can get a hard money loan. You can find a Partner. You can get a Private Money loam. Or you can get a conventional loan which will cost you up front. Be flexible and a hustler. A good deal will go with you any way you choose. Just take action and be a good presenter. Sound like you know what your doing. Always do your analysis numbers and try to look at the property before you make an offer but be quick as you can. Good luck!
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Marie Edwards
Rochester, MN · Member since 2016 · 15 posts · 2 votes
10y
Hi Joseph Pass My boyfriend and I are doing the same thing. We're using the FHA 203k loan to purchase and rehab our first property. Down payment is low and interest is relatively low, but as others said, find a lender in your area that has experience with these types of loans. If you have any other basic questions about it, let me know! Good luck!
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Joe Norman
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
10y
If you're looking to rehab a home while living in it (i.e. House Hacking) then a 203k loan is a great option. If you just want to get in-and-out on an investment property and not make it your primary residence then you'll likely have to go the Hard Money route or raise private capital. There are several great 203k lenders and HMLs in the Baltimore area, and also a few sharks to stay away from, so feel free to PM me if you'd like some referrals.
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Matthew PorcaroBusiness Member
Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
10y
You can also go as far as to finding properties that are up to 4 units. With the 203k loan, you can take out a loan for up to a 4 unit property. This way you can build up more equity. This is what everyone refers to as 'house hacking'.
I'm in the process of doing it myself on a duplex.
The 203k Way
Website View Page
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Shannon K.
Buffalo, NY · Member since 2015 · 252 posts · 109 votes
10y
@Joe Norman and @Marie Edwards, with a 203k loan, I understand you need to live in the house as an owner-oc, but also that only approved contractors can do the work?
This is one of the reasons I initially crossed this off my list without further research. I have a construction crew. We'd like to rehab it ourselves, but local banks told us only 203k-approved contractors may do the work, and their rates were ridiculous for something my guys would do during our normal daily activities.
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Marie Edwards
Rochester, MN · Member since 2016 · 15 posts · 2 votes
10y
Shannon K. Yes, you're correct. The property must be your primary residence for a year if using the 203k loan. From my understand and based off of what we were told by our lender, we can choose our contractor or bid out different contractors as long as they are licensed. Perhaps this varies on location? I agree that doing the renovations yourself would save TONS of money but some of the things we want to do, we're not capable of (our handiness is sub par) We plan to contract out the "bigger" stuff with the 203k loan and then do the fixes we can handle ourselves during our year of occupancy (although we would be paying out of pocket for any fixes we do afterwards obviously). With the 203k, as long as the house is up to FHA code after reno and as long as what we put into the property total is less than the ARV, then you're good! Also, for some reason, with the 203k loan, you can't put in stainless steal appliances or granite countertops. It's a lot of extra paperwork and organization with the 203k loan but as long as you're working with people that know what they're doing, it's great for first time investors that don't have loads of extra money for renovation :) Marie
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Marie Edwards
Rochester, MN · Member since 2016 · 15 posts · 2 votes
10y
Shannon K. Hmmm... Now I'm wondering if we were misinformed by our lender... I'm reading up on 203k contractors. Thanks for bringing this to my attention!! I need to do some digging now!
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Shannon K.
Buffalo, NY · Member since 2015 · 252 posts · 109 votes
10y
@Marie Edwards, No problem. It's been a wonderful 8 months of misinformation and rediscovery with the lenders I've spoken to thus far, lol. Always a surprise, so I like to double and triple check everything!
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Marie Edwards
Rochester, MN · Member since 2016 · 15 posts · 2 votes
10y
Shannon K. , Exactly! This guy has done many 203k loans before so it really surprises me. Guess double checking isn't even enough! Good luck on your property
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Ryan Beasley
Statesboro, GA · Member since 2016 · 44 posts · 13 votes
10y
You can look into whether your property qualifies for a HomePath Mortgage by going to HomePath.com HomePath is the same thing as a 203k loan in that it includes mortgage and rehab costs, but HomePath is available for investors and "non-owner occupied properties". However, your property has to be a BankRepo owned by Fannie Mae! In which you probably already know whether it's a Bank owned REO or not.
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Chris Jackson
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
10y
Hey all - I'm going to throw my two cents in with everybody else. Lots of people have been talking about the 203K loan. My mortgage broker told me he won't even do those anymore because of all the restrictions and extra fees that are associated with them. But in that conversation he did come up with another possibility. I am currently looking at buying a duplex. Half is rented and half is completely gutted. Another option he told me about is going to a couple banks, or online banks as quickly as possible (don't know if that really matters or not) and getting unsecured lines of credit. They're based off of your income and credit score, I guess, and as far as I know usually only go up to about $35K - so you might need more than one of those lines of credit in order to pay for all the construction that needs to be done.
This is what I'm thinking about doing. Tomorrow I am going to go to my personal bank to get a loan, then as soon as I'm done with them I'm going to apply online at USAA (my insurance company) and somebody online from LendingTree.com. If I can successfully get 3 lines of credit for about $35K each, then I'll have almost instant access to $100K for doing rehabs and flipping them or refinancing them.
What does everybody think about my option??
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Jacob Anderson
Rental Property Investor · Cedar City, UT · Member since 2016 · 209 posts · 45 votes
10y
@Chris Jackson I've used this method, it is just like a credit card in a sense. To me it is like being your own "hard money lender", except you can shuffle the payments around if you need to. Plus you don't need approval from anyone.
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Chris Jackson
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
10y
Just got a phone call from my personal bank, actually, telling me they could only loan $10K. Dissapointing,but that is why i am going to ask multiple banks!
thanks for letting me know that you do this too!
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Shannon K.
Buffalo, NY · Member since 2015 · 252 posts · 109 votes
10y
@Chris Jackson, that's a creative idea. I've looked into the possibility of using someone like Lending Tree for a personal loan for our rehabs because they're normally always within $35-40k, but I never thought about it for purchasing the entire property.
What is the likelihood that you'll receive the max $35k credit line 3 times though, I wonder? Properties we flip are normally $80-120k purchase price so this is interesting to me. I wonder what it would do to your credit score and such too?
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Jacob Anderson
Rental Property Investor · Cedar City, UT · Member since 2016 · 209 posts · 45 votes
10y
@Shannon K. and @Chris Jackson If your credit is great, apply for all the banks at the same time, just as you could with credit cards. If you do them all the same day or two, it helps you in two ways, that I know of:
First, it usually counts as one "hard inquiry" on your credit, even though you are doing multiple applications. Equifax, etc, assumes you are shopping around.
Second, your application of different banks doesn't show that you were accepted or denied for several days, (they are not reported to the Equifax, etc. that quickly). The banks just see it as if you are shopping around.
I have done it this way and was approved for all of them at the same time, and denied one. I have done 6 credit cards and an auto loan at one time, lol, they all went through.
Hope that helps!
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Susan Maneck
Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
10y
FannieMae rehab loans are much less of a headache that FHA 203K. If I were you at would go that route. FHA just requires too much paperwork.
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Shannon K.
Buffalo, NY · Member since 2015 · 252 posts · 109 votes
10y
@Susan Maneck, Fannie Mae rehab loans require 90% of the renovation work to be completed by bank-approved contractors. The DIY improvements can "only account for 10% of the as-completed value." Fannie Mae offers the option for investors to utilize this product by putting a larger % down so owner-occ isn't necessary, however....
https://www.fanniemae.com/content/fact_sheet/homes...
Unfortunately, still a headache for us flippers who don't need to pay a separate construction crew and can DIY, but maybe OP can utilize this type if he doesn't mind hiring out all the work.
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Julia Dugger
Rental Property Investor · Jacksonville, FL · Member since 2015 · 61 posts · 27 votes
10y
@Ryan Beasley, the HomePath mortgage product was retired two years ago and is no longer available.
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Chris Jackson
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
10y
I wouldn't necessarily suggest using line of credit (what I mentioned earlier) either if you're planning on spending a long time DIY'ing. My method would only work if you're going to contract a crew to knock the job out quickly. @Jacob Anderson thanks for your reply - that is just what I was thinking. Although I hadn't thought about applying for a bunch of credit cards at the same time that I was applying for the lines of credit. Do you have any good suggestions on what kinds/companies of credit cards I should apply to??
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Jacob Anderson
Rental Property Investor · Cedar City, UT · Member since 2016 · 209 posts · 45 votes
10y
I suggest you go to "creditkarma.com". It is free for everyone, and a way to monitor your own credit and even dispute things!
It also gives you the loans that are best for your situation (c.c., lines of credit, auto loans). They even rate which ones you will most likely get approved for.
It is the best!
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Chris Jackson
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
10y
@Jacob Anderson hey man - thank you SO MUCH for giving out some of that amazing free advice! You have really been helpful! I was wondering - you were the first commenter on this thread - and you suggested the 203k loan but said the caveat was it had to be an owner-occupied home. Do you know of any other kind of construction loan available for non-owner occupied purchases? I am looking at a duplex for $60K that is half rented and the other side is gutted and needs to be rehabbed. Probably $40-50K of work I'm guessing - EVERYTHING needs to be done on the one side. I am not going to move my family into that part of town just so I can owner-occupy the place. Any other thoughts? The current rent ($675) I think would cover a conventional mortgage for $60K, but then I wouldn't have any capital to fix up the other side.
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Chris Jackson
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
10y
@Jacob Anderson Sorry - I meant to ask you also - do you have any specific credit cards/cc companies that you think are the best to apply to (all at once)? Low interest for a year, or no-interest for a year? That sort of thing? And how do you go about using a credit card for renovations or purchases? I don't really get the process behind that.
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Jacob Anderson
Rental Property Investor · Cedar City, UT · Member since 2016 · 209 posts · 45 votes
10y
@Chris Jackson It was not I that suggested a 203K loan, it was @Matt Rosenbohm.
@Thomas Franklin knows a lot about loans.
About C.C., of course 0% is the best, but sometimes they aren't avail. I personally applied for all different ones at the same time - Discover, American Express, Capital One, Chase, Barclaycard, Citi for example. I also look for ones that give a benefit besides the 0% or low interest, like 5% back or miles cards.
I go close to maxing out one card to buy the materials or pay labor. Then before the grace period/ due date, I transfer the money onto another 0% card. It cost you some in transfer fee (unless you get lucky and have a card that waives this for a time).
Then you pay it off when you refinance the house with a loan after the rehab is done.
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