New to Investing--denied for FHA loan

14 Replies

Hello, my name is Jaston (new member) and for the last two months my girlfriend and I have been in the education phase. We're both recent graduates and have developed a passion for real estate. We realize it's a great way to build wealth /cash flow if we put in the time and effort. We have been using a majority of our time simply learning and networking which has been going amazingly well. Our goal is to own multi-families (3-4 units) in the markets of Pawtucket and Woonsocket Rhode island within the next 6 months. We've come to the conclusion that a FHA loan would be the most beneficial for financing seeing how we want to house hack and have very little capital to begin with. After working with a few people, I realized I would not get pre-approved due to my income. He advised me that my two part time jobs is what's holding me back and I should get a 40 hour position in order to continue. Clearly I will be working on obtaining a full time position but in the mean time what else should I be doing? We really want to stick our goal of purchasing our first property within the next six months. Should I pursue other forms of financing i.e private money/hard money? Are there other federal loans that I can get pre approved for with my current financial situation? I'd appreciate any and all advice. Thank you in advance!!

@Jaston Robinson usually FHA is the best form of financing you can get simply because you can put very little down and the rates are usually very good. You'll find that most private and hard money loans have much higher rates which could make the property #s hard to work in your situation (as you've described it).

If you can find a property where the seller has little or no mortgage you can try to get seller financing, where you essentially pay the seller instead of paying the bank (and they keep a mortgage on the property and can foreclose if you don't make the payments).

Those are usually harder to find, and when you do it might be a tough sell as a new owner/investor. Usually owners who are willing to entertain seller financing want to see that the buyer has a track record of owning (and successfully paying on) multiple properties, so they can feel reasonably assured they will get paid on their own (seller financing) mortgage.

But, that said, there's no harm in asking a potential seller if they have a mortgage and if not, if they'd be willing to take payments over time instead of all at once (i.e., seller financing). If you really want to try to find seller financing, I'd recommend looking in the areas you want to own, and try contacting owners directly (e.g., sending mail to the owners saying you're looking to buy a property like theirs in the area, or calling on a For Rent sign if there is one). It's fairly rare to see seller financing on MLS properties.

Beyond that, you didn't specify which people you'd talked to about mortgage pre-approval or pre-qualification. If you'd been talking to people who work directly at banks or credit unions, you could talk to one or more mortgage brokers. Brokers are often a little more expensive since they have their own fees on top of the ultimate lender's fees, but the advantage is that they are aware of multiple mortgage programs.

You should also contact Rhode Island Housing and see if they have any loan programs that would fit into your situation. And be sure to mention to RI Housing or any mortgage broker that it will be your first property as there are often "first time buyer" programs. That's probably already come up in your discussions but I wanted to mention it anyway just in case.

Good luck and let us know what you find, of course!

@Jaston Robinson Welcome to BiggerPockets! Truly nice to meet you. Good luck going forward! 😁 Don’t give in. Maybe now is not the right timing, but use it to learn more.

Maybe volunteer your time learning to build homes so you understand that side. I do commend your for working 2 jobs. Clearly you are not afraid of doing what you have to survive.

You might even work on finding a deal that you can partner with. Find a multi unit property and work a deal were you are part owner and property management.

I've found craigslist is a great place to look for owner financed deals. Also, people who have signs out for sale by owner are sometimes willing to do owner financing.

@Jaston Robinson . Welcome to BP! My suggestion would be to get a good job, save as much $$$ as you can, and learn as much as you can by reading books (What every investor needs to know about cash flow is a good one) reading here, etc. 

Talk to your lender and find out how long you will need your FT job to be able to qualify. 

It is important to create a strong foundation for your investments. And part of that foundation is cash reserves and not needing to rely on high interest rate loans. 

You have your life ahead of you - you have time! 

Aside from saving for down payments and getting a full time job one of the most important things you can do as a first step is to make sure you have established credit.   If you don't have credit start to get it with a  simple credit card and some history of paying off loans personally as a first step.  I have a brother who is his forties tried to get a mortgage and couldn't , he didn't have any credit.  He paid all cash, all the time.  So while getting that full time job look into your credit score and if you need to establish credit get a CC or small loan to prove you can pay things on time. And if there is anything you need to dispute on your credit report take care of that.  

@Jaston Robinson , @Colleen F. makes a good point. If you haven't already gotten a copy of your credit report you should be able to do so from Equifax, TransUnion and Experian once a year and I'd recommend getting them from at least one.

I never remember the right website so I always search for "FTC free credit report" to pull up the page on ftc.gov which then has the right website (annualcreditreport.com apparently). I do it this way just because there are a lot of scammy websites that pretend they're the official site and going through the FTC page eliminates the possibility I'll go to one of those by mistake.

Of course, if you're working with a good mortgage person they should already be talking to you about a lot of this stuff, what your score is and how to get it higher, etc.

If you can get the free report from each of the bureaus and look it over, and have it in hand when you talk to mortgage people, it can give you a head start talking with them about any issues such as lack of credit or certain accounts that might be impacting you a lot but could be easily paid down or paid off, etc.

@Anthony Thompson thank you for the suggestion about seller financing. Thats truly a wonderful idea.  I have already come across a few for sale by owner properties where that could be an option ( I simply haven't asked yet). I'll have to study a bit more before I approach these sellers with option. I don't even now where to begin to start preparing to have that conversion. 

I also will take a more in-depth look about these first time owner programs. Do you have a suggestion on which website will be more informative? Or would just a google search do?

@Jaston Robinson I think first time buyer programs are usually one of a set of programs any given lender will offer at a time. So it's not like you'd usually search out lenders who offer first time buyer programs. Since most do, it's more of a question you'd ask after you already start talking to lenders or mortgage brokers. But definitely check with RI Housing at least; they often have programs aimed at helping both first time buyers and buyers with income challenges (e.g., their FirstHomes tax credit program).

Originally posted by @D. M. Traxler :

I hope you are successful . I am new too and learning, what does the term house hack mean?

Hi ! nice to meet you. I wish you the best in this learning phase. If I can give you any advice it'll be just to stay consistent with learning. Every Monday and Tuesday my girlfriend and I head to a Starbucks and study for about three hours. It's easier to hold yourself accountable when there's a routine. Lastly, house hacking is when a land lord uses the rents to pay down their own expenses (i.e the mortgage). The goal is to be cash positive (to have more income from rents than expenses for the house). Hope that was helpful and good luck!

 

Originally posted by @Nicole Wood :

I've found craigslist is a great place to look for owner financed deals. Also, people who have signs out for sale by owner are sometimes willing to do owner financing.

Hi! While driving for dollars I found a few properties with these signs up! I was so excited to see that all of the hours of listening to podcasts were paying off. I will make sure to keep a close eye on Craigs list also. Thank you !

Hi @Colleen F. I've had a few credit cards for about 5 years now. I too have a relative similar to your brother so I wanted to avoid that myself! In addition, you make a great point on disputing things on my report. I do have a few I can pursue. 

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