My Play on FHA Loans: Your Thoughts?

[Clay Manship]

For those who don't know, I am in the market for my first primary residence. I will be buying a 4-plex using FHA 203k, and will be occupying the unit for a while. However, the more I think about the way the process works, the further I develop a strategy to best utilize the great advantages at my disposal. Here's what I am thinking:

1. I will buy a 4-plex at $100K. I will then spend an additional $100K in renovations for a total loan amount of $200K.

2. After the renovations are completed and I am occupying the property, let's say the property will then be appraised at $260,000. Therefore, my net equity in the project is $60,000.

3. I would then want to refinance immediately into a commercial loan, in order to escape the monthly PMI. FURTHER, once this property is refinanced through a commercial lender, and paid-off in full in the eyes of the FHA lender, I would then want to jump directly into another FHA 203k project.

And that is where my idea gets confusing. I want to utilize the FHA 203k program to the best of my ability, as well as leverage my relationships with commercial lenders such that I can get on FHA's books, pay them off, and then get into another FHA 203k loan almost immediately. I have spoken with my FHA Lender and he has told me that, to the best of his knowledge, FHA simply has a 6-month seasoning period where you can't touch the note, refinance, pay extra principle, etc. That's it. He stated once I am paid in full and my 'FHA Reference Number" has been declared as paid-off, I should be able to rinse and repeat.

Anyone have any experience in this or obtaining MULTIPLE FHA loans? Would appreciate any feedback.

[Brie Schmidt]

@Clay Manship what @Brian Sealey is telling you is that FHA will see it as "off the books" if you get a conventional or commercial loan. It is just that conventional (residential) has better terms and is usually easier to get as commercial requires a greater track record and may be hard to obtain for a loan under $250k

That being said, your process seems fine. As long as you move to each one then you are within the FHA guidelines. Just don't be too surprised if they will only give you a little bump in equity during the first year. In my experience they tend to appraise under market but above all in costs during the first year even though the seasoning requirement is 6 month.

Loans 1-4 are pretty easy to get as long as you have the DTI and credit. But once you get to 5 residential loans you cannot do cash out refi so it would be at this point that you should have enough of a track record to get commercial loans and move them and start over