All Forum Posts by: Perry Farella

What I am referring to with the 15% down rehab loan are for Investors who will never live in them.

HI. Not sure what you mean by Fannie Mae but I can tell you that you can buy a 2 unit owner occupied on a Fannie Mae conventional loan with 15% down. You can also add in dollars to rehab in same loan, called HomeStyle. All based on future ARV. You will get at most lenders, credit for 75% of the projected future rent from the other unit based on an Appraiser survey, to use then as extra income to qualify for loan size you need. Another approach is an FHA 203k loan with a down payment as low as 3/505 if you qualify. Happy to answer questions anytime.

Just a word that using a HELOC on you personal residence means adding debt to it. But as an alternative there is a way to buy an investment home and add in all the dollars to rehab as a small investor with the loan in your name, not your LLC. It is Fannie Mae HomeStyle or Freddie Mac Choice Renovation. Example: 50,000 purchase plus 50,000 in rehab dollars = 100,000 transaction and these require a 15% down payment on that 100,000 or 15,000 down. But you have financed the entire rehab+ purchase and there is automatically an added 10% contingency reserve should the rehab run over projected costs. Rates based on your credit score like typical conventional loans, maybe in the high 5's today. This way all the debt is on the investment property rather than your personal residence. If anything goes bad your own home is safe. Plus you can keep the loan open for 30 years if need be and lease if you cant sell as planned. If you do sell there is no pre payment penalty. Just another point of view, happy to answer questions any time.

On 203k you can buy a second parcel PROVIDED it is only a small piece of Non Buildable land. Like say an extra area for a driveway. I have done one in the past but the FHA rule is the parcel cannot be legally buildable. That means usually a small strip of land only than can never be large enough for a separate structure to be built on it. Ideally have the parcels combined first. Then be sure there are sales comps of like properties that also have a coach house. Zoning is key, will the local zoning/planning dept. really allow another unit (coach house) to be built there ? And if so are there sales of properties recently with such a coach house as the 3rd unit to establish value ?

Just to add that Conventional renovation loans for small investors are still fully available. If you have reserves and a 15% down payment both the Fannie Mae HomeStyle and Freddie Max Choice Renovations loans are available. These are for individuals only, not businesses or LLC so are not like hard money loans but if you value the security of a 30 year term, with a P&I payment and built in 10% contingency against cost overruns this loan may work for you. Happy to answer more detailed questions or review my Blog.

JUst to chime also as one who has helped first time investors with single family buy and rehabs with HOmeStyle. If it si a single family home then the down payment can be 15% off the sum of purchase price + rehab dollars needed. If you can do that then you have the peace of mind of a 30 year terms loan, no pre-payment penalty so fix and flip is ok; fixed rate based on you credit score, maybe 5% today and no pressure from a Hard Money Lender to rush the fix and sell. In this way all the debt is on the rehabbed property and not your primary residence, much safer in my view, just my view. Say the purchase is for a 200,000 single family or condo and needs 50k in rehab, that's 250k plus HomeStyle always requires an emergency fund of 10% of the rehab in case of cost overruns or extars not expected seen later during rehab, so in this example that's 5000 or 10% of the 50k rehab cost. So final total is 200k + 50k rehab + 5k 10% reserve= 255k and 15% down payment of that is 38,250. ( this can be out of your own home's equity if that's what you want). Then you have a 30 year term mortgage at say 5%, that is a P&I monthly payment of some 1159.00. The you 100% of the rehab funded , plus an extra 10% emergency fund in the loan if ever needed for extra costs, if never used it is subtracted from the final loan you have. Downside of this is you don't get a bucket of rehab dollars to use without supervision. The rehab must be done by licensed contractors, not the borrower. The appraisal for loan approval is done during underwriting based on contractors written details of the work and costs, so you know before loan is even approved if the after renovated value (ARV) will make all this worth it, if not , you walk away. AN extra benefit in my view is that it is automatically assumed you will lease this house to tenants after completion so the loan gives you extra income credit for future rent as determined by Appraiser at 75% of gross. Say house will rent for $2000 a month, you get $1500 a month in extra income to qualify for the loan, even though you may sell and never rent it. That aspect makes it easier to qualify for one of these loans for most people. There is a new loan that works the same way called Choice Renovation from Freddie Mac too. So if you don't mind bank oversight, don't own more than 4 financed properties, then these loans may be a good alternative to Hard Money Lenders. The loan is made in your name, never to any LLCs just fyi. It is for small or newer investors doing fix and flips repeatedly (BRRR) basically. I'm happy to answer questions and check the Blog for examples.

If you dont mind a traditional 30 year , fixed rate mortgage there are 2 conventional loans for buy and rehabs/flip. One is called HomeStyle by Fannie Mae and other is called Choice Renovation  by Freddie Mac. Each require a 15% down payment off the sum of purchase price and rehab dollars needed. Rates are based on credit score around 5% today. In your example if purchase is 135k plus 40k rehab plus 10% emergency reserve required of 4k thats  a total of 179,000 - 15% down payment is 26,850. Mortgage is 152,150 and if rate is 5% that s P&I monthly of 813.00 plus tax, insurance escrow. Now I know this is a lot different than typical Hard Money terms but it gives peace of mind that payment cant go up, it has no pre payment penalty so you can sell at any time. Or if there are delays in Permits, construction etc. you have reasonable costs each  month. But you have financed the buy and the rehab and protected yourself against a market that would allow you to rent if need be and perhaps have positive cash flow. Downside is you must have a licensed contractor(s) doing the work, not you. Its not a bucket of rehab money for you to use without supervision like a Hard Money loan may be. If you can live with that its a great way for a small , first time investor to rehab and flip safely, with the banks oversight. I write a lot of these in my blog.

Just to add here that I have helped client fiancé the purchase and rehab of a Buy/Hold or Fix/Flip with a coupel conventional loans. One is called HomeStyle for single unit properties and the EZ Conventional for 2 to 4 properties. These are all 30 year term, fixed rate loans with no pre pay penalty. They finale 100% of the rehab in effect. If doing a single family then down payment is 15% of purchase price + rehab dollars; I.E. if buying at 50k and need 50k for rehab that 100k and 15% of that is 15,000 down. On 2 to 4 units the down payment is 25% of purchase price + rehab dollars needed. Loans are to Individuals , never to LLC just fyi.

Kevin- Yes no regular loan will close in less than 2 weeks. It is also possible to use them as refinance loans after you pay in cash or pay with hard money. Or later after you do the rehab yourself, refi into a more conventional loan to rid yourself of the hard money circumstances.

Just to chime here as a regular FHA, VA and conventional rehab lender. The HUD FHA 203k rehab loan will sometimes allow a non-for-profit to be the borrower if it has strong reserves and financials. Another alternative is the VA rehab loan where the end veteran buyer purchases the property with a VA 100% loan which then includes all the rehab dollars.

I have had investor clients also buy a home to rehab with a 15% down payment  based on total of purchase price plus rehab dollars needed, then fix it, flip it and repeat. The loan is a conventional fixed rate, maybe 5.50% or 6% these days  , for 30 years with fees less than Private  or HM lenders. My blog has stories of how they work.