Should I do this ?

Question

PLAN: I need 20% down to get an investment property, right? But, what if I get an FHA loan with 3% down ( lets say it's 3k down ) but, I cant rent it yet, and I have no money to cover the payments ( lets say its 1000/mo ), after 1 yr, I will be able to rent it, so, I borrow 12k from Other people's money, and I pay the mortage payment for 12months, after 12 months I refinance the property and I get 12k back and I pay off my debt, then, I rent out the property!

Account Closed · Answer

Don't be afraid to talk to your loan officer about your plan.  Loan officers know the ropes and can tell you what you can do about living in the house, or not living in it. I am not for breaking any laws, but maybe, there are loopholes where you can have a valid and legal reason to rent the house a few weeks, or a month after you purchase it.

I have an employee who purchase a house FHA with 3 percent and he lived in it for only about 3 days. He is allergic to cat dander and the house has so much inside, in the attic, in the yard, garage and underneath the house he got instant sinus problems and severe rashes on his entire body . He paid workers to clean the property, paint it, vacuum and every time he went to the house he became very sick. Do you think the bank would call in the loan because he had a medical condition that prevented him from going near the house?Your lender will tell you how to work the ropes. What would a lender do if you purchase the house FHA exactly as you say and your relatives decide not to loan you the money. That is the question I would ask the lender. Everything we do has inherent risks and then we have to consider the probability for adverse results.My guess is that you don't have enough disposable cash to purchase a property and you are taking too many risks. Your relatives could back out. Almost every property needs some type of repairs during the first year. Maybe, the water heater will leak. That will cost you $1.000. The furnace may give out. That can be several thousand dollars. The stove fan could break. A circuit breaker could constantly trip. You may find the carpets are not clean enough for a tenant, or you need to paint a few rooms. You tenant could sign a lease, give you a deposit and never pay another month's rent. Now, you have to pay  a thousand dollars to evict the tenant. Can you count on your relatives to bankroll everything until you get on your feet.

Account Closed · Answer

I am guessing that FHA loans don't have pre-payment penalties??? I am also guessing that no lender is going to re-finance nor give you any type of loan when you have only 3% equity (your FHA down payment). Maybe, the only way you can get a loan is if you purchased the property for 20% to 30% less than its actual value, or if the property value appreciates significantly during the first year.

I never saw a case where an FHA borrower got into hot water because he (or she) did not stay in it for 1 year. I never heard of a lender checking. What happens when something in your life forces you to move out of the property due to a job change, or an illness. What happens if you buy the house FHA and you find a hot woman who wants you to stay at her place every night? Will a bank really spy through your window and call in the loan. I doubt it!

Account Closed · Answer

@Jack Orthmanwell.. it's my dad's credit, but, yea too much risk, I dont have to pay for paiting either the tenant buyer paints it becausee it will be his house, I would do this with my dad's credit and with brother's money. If I could rent the house without living there I would still hsve good cashflow even though I have PMI because Lease Options give you more cashflow, you are right, its too much risk, I should learn more before doing this and ask my loan officer. Thank you!!

Account Closed · Answer

@Jack Orthman I think like that, but, I could get in trouble if they find out that im not living there and im using the house like an investment property. I will buy the house with 20% discount and put 3% down and borrow 12k for holding costs.  Pre payment penalties? What is that?. If I cant refinance it I will do a "lease option" and receive 10k option to purchase and I will use that to pay my lender.

Should I do this ?

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