FHA 203(k) vs Fannie May vs Freddie Mac

[Jarret Durst]

What's up guys, I'm trying to cover all my bases. I'm looking at a foreclosed property that I want to do the BRRRR strategy on. I only have enough for a low money down approach for now.

I was looking at FHA 203(k) but then I learned about rehab loans under Fannie May & Freddie Mac. This is the first I'm learning about these alternate options. What are your opinions between the 3?

[Chris Mason]

Quote from @Jarret Durst:

Quote from @Nick Belsky:

@Jarret Durst

Save yourself a bunch of stress and headache and avoid 203k.  Hard Money Fix and Flips loans are way faster and easier to get done and get out of.  Rate is irrelevant with these types of loans.  203k is a nightmare.  

Good luck.

 could you elaborate on why these are such a headache? I have been hearing it but nobody has really explained why.

 The level of scrutiny is appropriate to a loan program that would allow a first time homebuyer, with zero project management experience, who has never even changed the oil of their own car, to suddenly play construction foreman. And the scrutiny isn't reduced if the person says "but my brother is a carpenter." That is, to say, very high. 

And that's true of the general contractor as well, that person who doesn't "push paperwork" for a living because they "swing a hammer." Whelp, now they need to push paperwork. But they don't want to, that's why they got into the trades. So they might charge labor + materials + 35% instead of the normal labor + materials + 20%. So now we have a 35% surcharge where 20% is normal, but the final result still has to appraise, you can't be 15%+ underwater and have it close. 

There's also the chatter-to-execution (CTE) ratio. A million little kids say they want to be an astronaut, for every 1 that actually does. So the CTE is about 1m to 1. About 2 people say they want to own a home for every 1 that actually buys a home, so the CTE is 2 to 1. And about 1 little kid goes pee for every time a little kid says "I have to go potty," so the CTE there is 1 to 1. 

Renovation mortgages for first time homebuyers has a CTE of about 200 to 1. And I do not think that is an exaggeration. 

Most websites, blogs, podcasts, etc, are not monetized on execution though, just on chatter. And renovation loans are a great thing to chatter about, it's the teenage girls chattering about their weddings, that sort of thing. So if you're trying to drive clicks and likes and advertising revenue, you talk about renovation mortgages all day long, just like you talk to those teenagers about wedding dress options. If your goal is to actually move wedding product to actual brides, you talk about very different things, don't you? 

Take note of the fact that loan officers, who ONLY monetize on execution, rarely if ever bring up renovation mortgages. Even reverse mortgages are higher on the list, that in itself says something. 

And on the subject of the elderly: the majority of renovation mortgages in the real world are on properties that have been inherited (past tense, note) from deceased family who had neglected it prior to their passing.