Landing a Good Deal Through a Conventional Loan

4 Replies

Am I doomed in finding a good deal if I'm going through a big bank and being financed through Fannie/Freddie/FHA? From the little I've learned so far, it sounds like, generally, getting a good deal requires cash, which either requires the investor themselves to have cash or for the investor to have a private/hard money lender. Furthermore, the investor needs to be offering up a super speedy closing process. (All about beating competition)

I'm planning to invest for the first time in a duplex, triplex or four-plex that I'll house hack for at least two years. A key benefit to a Fannie/Freddie/FHA loan program is the low money down and much lower interest rate. I'm, no doubt, going with one of those programs for financing. But is all hope lost in finding an off-the-market deal since I won't have cash and time on my side? (I've heard the big banks and these loan programs can take quite some time to close with compared to private lenders) Am I limited to on-the-market options that most often involve worse deals with this kind of financing?

Hi Valerie - you need a local corespondent lender (not a broker or bank) to help you if you are looking for a competitive deal with fast closing times. If you are working with a real estate agent ask them for a reference. Another good source for you to search for a lender is Redfin they have a section called open book that allows you see reviews on all venders - contractors, inspectors and lenders. Unlike the zillow reviews these reviews are not controlled by the vendors - Redfin doesn't receive any money from these companies so no influence and you get the real feedback from Redfin's clients.

Good luck.

@Valerie King FHA is a slower process for sure, but it allows you to get deals that standard investors cannot. I picked up a 3-unit property this way. The owner was asking (I'm rounding here for ease of math) $400k, and there was around $20k of deferred maintenance. A standard investor would have to put $100k into the deal (20% down plus maintenance). The margins were too slim to make that an attractive deal to anyone. Well, anyone who was not using owner-occupied programs...

I picked up the same deal and put in $14k down (3.5%), plus because I was living there I could do some of the maintenance myself which saved me around $5k. All in price for my FHA version was just $20k.

Because I used FHA financing I make ~4x the returns of the standard investor because of how little money is in that deal. This is not a precise number because I do pay a few hundred extra each month due to having a higher amount financed and PMI, but I think you get the point. I moved out after my 1 year and it has been performing like a rock star ever since.

So, you are right that FHA is not the super-fast, close-in-3-days, cash-in-your-face kind of offer that people are doing, but some sellers don't care about speed, they want a better price. You can make that offer and still get better returns than the traditional investor.

Best of luck and happy investing!

Hi @Bryan O. ,

Awesome to know! Thanks for sharing your experience. You make a good point I didn't consider. Glad to hear that it worked and is still working for you. Hope restored :)

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