All Forum Posts by: Perry Farella

Just to add I have had many first time buyers purchase with an FHA 203k with as little as 3.50% down if the numbers work. I did hear that Loan Depot and caliber suspended their FHA 203k programs in recent weeks due to perceived risks. My lender based in Dallas has not. Happy to answer questions any time. I did just today answer in detail on an earlier post on 203k if you can see it. My blog may be helpful as well.

HI. As one who has seen many first time buyers do what you plan I can chime in here. Its often a good strategy to use an FHA 203k loan on a first time purchase if the numbers can work. Meaning if you can maybe find a 2 or 3 or 4 unit property and live in one apartment and lease the others. FHA still allows you to buy with 3.50% down and add in the rehab dollars to that same 30 year loan. The rates are historically low but depend to some extent on your personal credit history and score so I hope you have been using credit cards etc. and building good credit history. But there are some rules. One of them is on any FHA loan, if a 3 or 4 unit property, it has to meet the Self Sufficiency test. That means current rents or future projected rents, if units vacant, off an Appraisal report will be used for all units, even the one you would live in, counted at 75% of gross rent, then that number has to at least meet the full monthly payment including property taxes, FHA monthly mortgage insurance, and home owners insurance. Say a 3 unit has rents each of $1000 so that's $3000 total, including the unit you will occupy after rehab, then $3000 taken at 75% is $2250. So the total monthly house payment cannot be more than $2250. That's called Self Suffiency by FHA. These days with Covid and tenants maybe not all able to pay rent, some lenders are no longer even counting that future rent as income beyond your own job income to help qualify for the loan size needed. Not sure how long that will last but not all lenders are being so conservative, certainly not the one Im with. I have many first time buyers doing this with 2 to 4 units because rents are high in most cities and interest rates are super low now. Any FHA loan requires the monthly mortgage insurance to be paid for all 30 years of the loan, at a factor of .0085 times loan size divided by 12 months to equal that monthly FHA mortgage insurance added to your payment, that's how they finance the program. So yes when you have 20% equity its wise to consider a refinance to a plain conventional 80% mortgage on say a 3 or 4 unit with no monthly mortgage insurance. Just not sure how long that might take. Another rule is you must sign up to live in the FHA mortgaged property for 12 months before moving out and leasing all units to tenants yet retaining the FHA loan. Hard Money Lenders are a different animal. I did write in my Blog a comparison a couple years ago you can find. But often their rates are 12% or more and they may only want experienced rehabbers, especially now with Covid and tenants maybe not all paying rent which is a consideration for you too. What if you leverage yourself with a multi unit, FHA or Hard Money, but your tenants stop paying rent and in most states evictions are currently prohibited. Something to ponder. Hopefully by end of the year this will have all passed by and be resolving. Happy to answer questions any time.

Just to add here that an FHA 203k rehab loan, which is maybe what you really need, can be a good answer. Rates are at historic lows based on credit score to some extent and can be bought down even lower by paying a point or two in pre-paid interest if you wish to keep that same loan for a long time. This is especially a great deal because you can buy with just 3.50% down and not 10% so you conserve cash and the rehab is funded out of the same 30 year loan at the same low rate, say if the house or 1 to 4 unit and was damaged and not eligible for any regular loans. HomePossible is a bit regulated relative to income, credit score , etc. and will carry a likely higher rate than FHA but with no upfront MIP as you state. But the FHA MIP is added to the loan so not paid in cash and if you refi in 2 years to a Conventional loan you really did not pay the MIP, you just made payments on it. These days rates are so low that each one thousand dollars borrowed on a 30 year loan may be only about $4 a month in payment for each thousand dollars of purchase/rehab money. I have done many of these for rehab clients in Chicago and happy to answer questions anytime. There are Conventional rehab loans by Freddie mac and Fannie Mae as well. Owner occupied is 5% down on sum of purchase price and rehab dollars for single family; 15% down for two unit and 20% down for 3 or 4 units if that helps.

I think your situation bears a closer examination by a lender. Meaning if on Workmens Comp, are you still employed by the same company ? Or are you a Union member who gets placements at a guaranteed hourly wage when a company needs you ? Then do you regularly go on Unemployment Comp in between job placements as a Union member ? Lenders cannot discriminate between those who receive government assistance especially if its seasonal, for example and documented on two years of Federal tax returns. Or once you are done with therapy, do you then have to go find a new employer ? If that's the case then yes you would be viewed as unemployed with no real future income to qualify. Lots to unpack here to really help you further.

The VA used to offer a VA Renovation loan for fixing and owner occupying for first 12 months. They suspended it in March due to Covid and Appraisers being exposed but one day it will return. Apart from that There are still the conventional Fannie Mae and Freddie Mac investor rehab loans requiring the individual to be on the loan, not any LLC and a personal credit report, tax returns, etc. But with 15% down off the sum of purchase price and rehab dollars all on a 30 year amortizing regular mortgage it may be a good alternative to the high rates of Hard Money. But if you have more than about 10 financed properties it will not work. Meant for smaller investors but with no pre-payment penalty, you can fix and flip. Rates and fees based on personal credit score of borrower(s) of course. With 15% down on the acquisition costs and rehab dollars , it effectively finances 100% of the rehab to 85% of ARV. Happy to answer any questions.

There are the conventional Fannie Mae and Freddie Mac investor rehab loans requiring the individual to be on the loan, not any LLC and a personal credit report, tax returns, etc. But with 15% down off the sum of purchase price and rehab dollars all on a 30 year amortizing regular mortgage it may be a good alternative to the high rates of Hard Money. But if you have more than about 10 financed properties it will not work. Meant for smaller investors but with no pre-payment penalty, you can fix and flip. Rates and fees based on personal credit score of borrower(s) of course. Happy to answer any questions.

Congratulations on a very aggressive strategy. Im assuming you have already purchased a primary residence on your VA 100% financing benefit ? If not I would do that first with a 4 unit. Cant beat VA 100% financing with no mortgage insurance to pay monthly. Always ask a Seller to give you 4% of sale price to pay all possible closing costs. Just the other day the VA changed their rule on receiving tax prorations back at closing. In the past the VA borrower got cash back at closing using this 4% seller credit strategy but no more longer. All extra cash from tax prorations is now used to reduce principal. But that still means you can buy at zero cost with Seller paying all closing costs and 100% VA financing. You may not be able to count the rent from the other 3 units to qualify unless you have 6 months of reserve on the total mortgage payment though, so be careful about that.

I recently had a client who worked for the Chicago Federal Reserve Bank and was prohibited from having an FHA loan, although he did not learn that until he had already closed on an FHA rehab loan. It seems the Federal Reserve has a conflict of intertest with certain job classifications with FHA. One obvious question would be do you have another property you can do a cash out refi on to secure funds to pay off the LOC on the rental house so you can keep the existing first mortgage ? Like your primary residence ? Or can you seek an exemption from your employer as my client did finally ? Your situation is why I'm an advocate of Investors buying with a 15% down purchase & rehab loan called HomeStyle or Choice Renovation from the start; one low rate for the whole thing without the pressure of an LOC rate or a HML coming after you. Wish I could be more helpful.

Just to add more though here. There are two conventional residential single family Investor rehab & purchase loans, called HomeStyle and Choice Renovation. Each requires a minimum 15% down payment off sum of purchase price plus rehab dollars plus a 10% of rehab budget emergency reserve. This all with reasonable rates as a 30 year term, amortizing payments, all based on borrowers credit score. Generally I have seen these in the high fives recently. But they are not loans for LLCs or businesses, just for individuals. Advantage over HML is 30 years time if you need to lease it; fixed rates for 30 years, no pre-payment penalty if you do flip, the rehab is basically 100% financed given the 15% down payment on total of purchase price + rehab dollars. Loan Approval based on ARV so the loan will not be approved if the numbers are bad. This loan provides oversight and protection for newbie small investors. All work must be done only by licensed Contractors, not the borrowers. Rates are far less than HML. You would be limited to local county Conventional Conforming loan limits on a one unit property, so not sure if that is enough to do it. I will comment that due to Covid we have seen jumbo lending all but frozen over for the foreseeable future. So if you needed a jumbo loan to refi out later, don't assume they are or will be available for some extended period of time. We had in fact a Jumbo renovation loan that is now paused for an unknown time due to market turmoil. This is a safer way to do it if the loan size can fit your project and you can live with lender oversight. There is a post on my blog I wrote in the past comparing these loans to HML if that's helpful. Happy to answer questions any time.

If you want to email direct that's fine. My blog link should be active here in my signature below. You would look for HomeStyle and Choice Renovation posts.