Fannie Mae HomeStyle Renovation

7 Replies

I’ve been looking into investing into RE and looking for loans and have came across the Fannie Mae HomeStyle Renovation loan. This loan looks the best for investing into property that might need some work but not too much. Also, I am a first time home buyer. Please leave your thoughts or criticism!

I think this loan is perfect, FHA 203 k also is a good option.

3.5% -5% down, money to buy and rehab. 

I would take it one step further and look to get 2-4 units, get a co-signer if need be, buy a fixer, raise the rents, live their and you are golden. Flip it every 2 years tax free!

@Rob Massopust Rob, thanks for the thoughts! I have a couple roadblocks with the 203k loan.. If I were to get the 203k loan I couldn’t sell the property until a full year so I would have to live in the property or have the money to pay vacancy fees, which I don’t have haha. Also, 203k loan has mortgage insurance and Fannie Mae does not.

Also, Fannie Mae has as low as 3% down while the 203k loan has as low as 3.5%.

This is what’s going on. I have a great opportunity helping out a family member, they want to downsize and don’t need a big home anymore. They have a 4bd/4bth, the house is estimated at $212k and was assessed for $174.5k in April 2019. They owe $98k on the home and I will offer them $117k (what they paid for the property). I plan on buying the property for $117k and using about $20k fix-up and have $10k for emergencies with the property *vacancy costs/other emergencies*.

I will end up taking a loan out for about $147-$150k and hopefully flip the house and sell for $190k+

Hmm interesting.

Lets run the numbers and see what might be best.

FHA/Fannie Mae is good for fix and flip, yes there are restictions. You can sell it sooner than a year. [FHA might put a 90 day restriction to sell to an FHA buyer but a conventional buyer is ok.] Double check with your lender or local issues but that is usually the case. You can put down as much as you want and it reduces your PMI. The Fannie Mae Renovation loan is great. You can do 5% down and should be easy enough to get $25-50k to fix up. As owner occupied you are getting the best rates and rehab progam out there, it blows away any hard money financing out there.

You are getting a great deal. Do they want to cash out at $117k is the arrangement? Do they need the cash right away?

Do you have the money to fix up? - yes you said $20k+

Everytime you buy and sell property you get killed, closing costs, points, fees and on the other end you got the same. So buy to sell you can eat up 20% of your equity that way. Rehab loan is one loan, one closing, keep for a bit then refi.

If the seller/family member would carry back the loan for short time, you do a seller carry/wrap/aitd mortgage, you fix it up and or rent out occupy for a year or two then sell or refi. This would be ideal. You should even be able to do a no cash out refi within 3 months if need be. 

Your market is on the upside. I would see if I could create a win win with the seller, fix and refi in a year. You should pull out enough to make it worth it and you still have the property to live in or rent out.

Every property I ever bought I wish I kept, the only reason I ever sold [besides not knowing] is because I needed the money.

If you were in CA maybe a flip is best but your market[ assuming its in AL] is on an upward trajectory, much easier to to the buy, fix, refi etc.

My 12 year old nephew called me the other day and told me he wants to buy a 4 plex and found one in Birmingham, go figure.

@Rob Massopust Rob, thanks again for the help! My ultimate goal is to fix and flip the house.

I would not oppose for renting the property out to a tenant for maybe a year to pay down mortgage/give me a chance to refinance, then sell.

I know selling the house comes with spending money also but I am not sure how much it is...I know some realtors take 6% of the sale for commission.. I don’t know much about the point system and how that works tho..

Maybe I could do a Rent-To-Own option on the home after I fix it up...hmmm.

Ultimately, I want this flip to become “my big catch”. I will try to get +$40k out of this deal and then find a multi-family property and buy that and rent that out for passive income..

Will the seller do a seller carry back? That determines everything

You got a good deal at $117k its just the details that bugs it out for a flip. The costs associated with it will yield you about half of what you were looking for.

Here is the numbers[rough estimates only] if you buy at $117k and put $20k into it and sell it for $190k

Purchase $117,000.00

Down      $10,000-20,000

Points and Closing costs 2-3% for escrow and loan lets assume $4000

Mortgage - PITI - $511+100+75[insurance] = $686 x 12 months =$8232 [total carrying costs, less if you sell sooner or live there- But if you sell within 1 year you get killed on short term gains 2x times as long term held for a year or more]

Rehab $20,000

Total investment - $20k+4k+8.2k =$32.2k

Sale $190,000

Sales and Closing Costs - Commission 5% =$9500 + Escrow and title and what not =$5700 = $15,200 Total Closing Costs

$190,000 - $15,200[closing costs]= $174,800 - $32,200[rehab] = $142,600- $117,000[purchase]= $25,600 Gross - Taxes 20-40% = $20,480 - $15,360 Net

If you are only going to net $15k you might as well do a refi at one year and keep the asset and pull out more than 2x time that amount. Borrowed money no tax implication. Refi's though you have to qualify and have provable income.

If you hold for 2+ years as an investment you can do what is called a 1031 Exchange and buy another like kind property and transfer the tax due. It is a great wealth builder technique.

If you live there for 2 years you can claim as owner occupied and same thing you get those profits tax free.

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