All Forum Posts by: Latasha Griffin

Its very difficult to get HML if you haven't had any experience in renovating properties before. Also, you will have to have a big portion of the purchase price and reno budget yourself unless you can creatively finance a second with the seller. But you'll definitely need some skin in the game. However, it sounds like your trying to accomplish what a FHA 203k was created to do. You could finance the purchase and reno budget with only 3.5% down payment (based off ARV). Seller can contribute up to 6% CC (based of purchase price, not as-is value). You'd have mortgage insurance until you can refi into a conventional loan (under 80% ltv). This can be used on 1-4 unit property. This loan type does have a lot of red tape, but if you approach it methodically and get organized before making an offer, it's quite powerful for house hacking. You'd need to pre-select your entire team--lender, GC, home inspector/HUD Consultant, real estate agent. All of them need to be experienced in this loan type so it can go smoothly. They all have a part to play in getting you to the closing table and completing the project.

I'm currently using wholesaling marketing techniques to find an off market deal on a quadplex. I plan to use the fha 203k loan when I find the right property. Let me know if you want to discuss. Happy to help.

The reality is, for you as an investor, your tenants will be paying off the loan amount. If the new mortgage amount for the loan at the higher amount works so that the property still cash flows at the margin you're comfortable with, I'd say use the 203k to complete all the renovations needed. Also, you're able to depreciate the property's improvements, the loan interest, and the mortgage insurance (req'd with fha loan) to offset your earned income. Why use cash out of your pocket when money is so cheap right now? FHA 30 yr fixed rates are in the low 3-3.5% now. That add'l cash could be saved to ensure you have a healthy reserve (super important esp in times like were facing right now) or to invest in another property.

As a pitbull owner and advocate, I prefer to allow all breeds in my units. I have insurance through Allstate, State Farm or Farmers Insurance since they either allow my dogs on my policy or they dont ask breed qualification questions. I plan to require my tenants to have renters insurance with liability coverage in the event of an incident. The pets will also have to be spayed/neutered, up to date on vaccines at the time of signing the lease, and I will charge a non refundable pet deposit.

People who own pits (which are wonderful pets), dobermans, chews, etc. need to live somewhere. They will often pay above market rent to keep their family pets safe and secure. I run a FB page for people with pits looking for housing. There are more than 600 member in my market in this FB community desperately wanting to keep their pets. I plan to cater to this niche.

Yes, I just locked my rate for a c/o refi yesterday!

@Paul Weldon, thanks for the correction. Yes that's the site I was referring to. Atlanta is a very active city for renovating properties. For there to be one single contractor on this site is very peculiar in my opinion. 

@Anna Catron what company do you use to conduct background checks?

@Kevin Andre with an FHA loan, you can use 75% of the rental income from the other units when purchasing a duplex, triplex or quadplex. You must live in one of the units for one year or until you refinance the loan to a conventional loan, whichever occurs first. Then you can move out of the unit you're occupying and rent it out as well.

@Hyacinthe Canton the term "203K Certified Contractor" is a bit of a misnomer. There isnt any HUD sanctioned agency that certifies contractors to be authorized to work on rehabs being funded by FHA. However, the lenders who are approved by HUD to underwrite 203K loans do have to approve the contractor you decide to use for the project. I'm not sure the exact guidelines for approving this lender, but I imagine it's very basic: current contractors license, liability insurance, business license, ability to submit an itemized bid, statement of work with milestone payments, and a clear understanding of how the draw schedule works.

There is an independent organization that has a database for GCs who want to get certified in this space: 203kcontractors.com. However, I live in Atlanta and not one GC is listed in this directory so I am not sure how much rigor is involved with vetting these contractors.

As far as how to find GCs with experience, I started with the lenders. HUD has a list of lenders who've closed 203k loans called the 203K endorsements list. Here, you can find all the lenders in your state who have closed this loan product, and how many they've closed in the past 12 months. If you start calling these lenders and interviewing them, ask them if they have worked with any GCs that they could recommend. I've gotten referrals from every one of the lenders I spoke to. Then I've interviewed all the GCs to make sure they were competent, organized, liquid enough to pay their crews until the draws were authorized, and not surprisingly, I needed to make sure they werent going to "man-splain" me because I'm a woman and a new investor. Keep in mind, you'll need bids from 3 or more GCs as part of the 203K project so find a few you're comfortable with. Some of them may even walk prospective properties with you before you put in an offer.

I've done a lot of research on this loan product as I'm looking for a quadplex to use it on currently. Feel free to reach out and chat about it. Theres a lot of nuance to this loan and having the details have made me much more prepared going into this complex but beneficial purchase approach.

@Amelia McGee For me, the rehab portion of REI is the biggest mystery. I decided to take a course to become a home inspector. In GA, it's relatively cheap and low commitment since there's no license requirement. However, my intention isn't to get into this line of business, it's just an attempt to have a better understanding of what to look for in a property's HVAC system, interior plumbing and electrical systems, roof, attic, floors, windows and doors, foundation, basement and structural components. I figured this will help me avoid being taken advantage of by contractors. Also, I'm looking for a quadplex in which to utilize an FHA 203K loan, which usually requires a HUD inspector. I plan to learn as much as I can from this person who I am paying to ensure my GC does what he/she is contractually obligated to do.

There is an FHA loan product called the FHA 203K. With this loan, you can finance the purchase of the property and the renovation budget up to 110% of the ARV. With this loan, you can purchase SFR, Duplex, Triplex or Quadplex properties that do not meet the HUD minimum standards-in other words, properties that are in disrepair or even inhabitable. The only caveat is that the foundation must be in tact. You can't do a complete new build. The loan requirements are the same as a traditional FHA loan underwriting (owner occ, 3.5% down at 580 credit or better, Mortgage Insurance, etc) except you can use up to 75% of the rent roll to lower your DTI ratio, and you cannot have any existing FHA loans outstanding unless 100 miles away from subject property.

The 203K loan has a lot of upside but is quite cumbersome to navigate. You'll need to work with a lender who is a servicer, not just an originator because once the purchase transaction closes, the reno budget gets transferred into an escrow account and you need your lender to be able to access it so you can quickly begin working on the reno or you will have problems with your contractor out the gate. When most loans close, they are bundled up and sold on the secondary market as CDOs and purchased by a new loan servicer. This could cause you to have to wait 4-6 weeks after closing to access the funds in the escrow account to pay you contractor. You'll also need a contractor who is financially stable enough to pay their workers out of pocket for a few weeks at a time bc you will only be allowed a certain number of draws during the project after certain milestones have been completed and inspected. There is also the extra expense of having a HUD consultant if the reno budget is >$35k or if any structural changes are being made to the property. This has a cap in cost but is an extra expense. However, the HUD consultant is there to protect you and the lender from shady contractors or subpar work. As a new investor, I'd be happy to use this person as it would be a way for me to learn the construction portion of a reno project for future projects.

I'd suggest starting with finding a lender. On the HUD website there are two lists: one for all of the FHA approved lender in your state who are servicers and originators. Use this list to find all the ones who are "Single Family and Multifamily Servicer-Originator" and 203K approved. Here's the link: https://www.hud.gov/program_of...

Then look at the most recent HUD 203K Endorsement list to find all the lenders in your state who have actually closed 203K loans in the past 12 months. Here's the link: https://apps.hud.gov/pub/chums...

Overlay both lists to identify all the 203K approved lenders in your state who are able to service the loan through the entire reno project and have experience with this complicated loan product. Interview them all to ensure you have a knowledgable lender and feel comfortable with them. Ask them all for references to General Contractors who have worked well on 203K loans with other borrowers they've worked with in the past. Call and interview all of them as well. 

Your agent should also be knowledgeable with the nuance this loan product has. You basically, need to assemble a team in advance of even finding a property to be most efficient with this loan product.

There's more I could explain, but these are the high level details that make the most difference in how difficult or easy the experience with this loan product can be. However, if you're detail oriented, and do a little work on the front end, this loan can be a game changer especially in the beginning of your investment journey.

Feel free to reach out to me directly with other questions. I'm currently looking for my first quadplex purchase and will be using an FHA or FHA 203k loan to acquire it.