I'm curious if anyone has been able to pull off a 203k loan on a pre-foreclosure home. As with most new members, I've listened to the podcasts religiously and have my thoughts stirring about how best to get into the house hacking game. My goal immediately is not to transition to real estate, I enjoy my job but hate paying rent in Minneapolis ($1,250 for a 700sq ft 1 bed 1 bath!) and would prefer to get into a duplex or triplex in the next year. My thought is if I start speaking with community banks now, start diving into listsource to generate leads and start speaking to motivated sellers I should be able to find one deal in the next 12 months. My reason for wanting to use a 203k loan is my budget is nonexistent, I will be saving hard while still paying off student loans and eliminating frivolous spending. The small down payment and the ability to include renovation costs excites me.
My biggest fear is the timing between having a seller who needs to get out from their mortgage quickly (preforeclosure) and the length of time it takes for a 203k to go through. I've heard horror stories of these dragging on forever, I don't want to turn sellers off due to the time it takes.
I'm hopeful that someone here has done this before either successfully and has positives to say, or unsuccessfully and can help talk me out of getting into a bad situation.
Thank you, and if you're in the Minneapolis area let me know.
Why don't you buy their deed and then do the refinance to pay off the foreclosing mortgage on your timing during the redemption period. If the spread isn't much between what they owe and what the "get out" value is to them, you won't have hardly anything in and can get your loan and you're not locked out due to longer time to get the loan. You just need to make sure you can get the loan or your purchase of deed price is lost.
To be honest I haven't looked into that. How willing are banks to offer a loan to a first time home buyer who's going after a deed? My other concern would be the down payment, with the 203k the payment is 3.5%, very doable for me. With a conventional at 20% that's out of my ballpark most properties I'm assuming. This sounds like a chicken vs. egg scenario, would you recommend any lenders you've worked with in the past for this? How does one go about securing a loan before finding the deal?
Second, I'd say you are hunting for deal where a lot of things need to fall into place for it to work. That doesn't mean it won't happen, but it may be worth going for more of a sure thing or getting creative with financing for a pre-forclosure like Bruce suggested.
Right now you would need 1. a motivated seller who 2. hasn't paid their mortgage and is in pre-foreclosure but 3. also put money into the property to keep it in good enough shape to pass FHA requirements for loan approval (not sure exactly how much leeway 203k gives you on these requirements) and 4. isn't aware of how hot the market is for rental property in Minneapolis so they 5. don't open it up to others to drive up the price or find cash buyers
You are on the right track and asking smart questions. Good luck on your hunt for a du/triplex
bought out several people on pre foreclosure and as long as you are up front and fair, about 1/3 of the people are willing to talk to you but realize they have a dozen other sharks trying to secure the place too. In my experience, developing a relationship without pressure works as you don't come off as a shark/slime ball-LOL. Keep saving as there really isn't many "no money down" scenarios so you need money to buy something. Oscar makes a very good point as it has to be in good enough condition that it has to pass the FHA test, so a full renovation place will most likely not work. You may want to look at something that is finished to start and house hack but you'd probably need $15,000-$20,000. Beg, borrow, talk to relatives because getting into the first one is a process to the 2nd one since you can keep doing that if you are willing to move from one place to another to be an owner occupied investor.
Thank you for helping with this scenario, it sounds like right now more savings and education would be beneficial before starting any sort of house hunting campaign. If we have any Bigger Pockets Meetup opportunities coming up let me know if you'll be in attendance, first beer is on me. Or more depending on how many questions I can ask before you get tired of answering.
I'm going to the BP meet up on Thursday night
You should come to check it out as it's a good way to meet people/network
Thanks for the tip, looking forward to meeting the group.
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