I Was told "No one will pre-approve a 203k loan" by a broker

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I Was told "No one will pre-approve a 203k loan" by a broker

Major Robertson
Investor · Louisville, KY · Member since 2014 · 142 posts · 77 votes

So I called a mortgage broker as I found a house I'd like to purchase and renovate with a 203k loan. The mortgage broker said that you can't get a pre-approval for an FHA 203k loan and doesn't know anyone that would do that. He said he would be willing to write a letter stating I would be approved based on the information I gave him. He told me that he has done 203k loans before.

I did research on 203k loans before and have seen people get pre-approved. Does anyone know why he told me this or if it's true that you cant get pre-approved for the 203k?

I'm skeptical about him not offering pre-approvals and would be nervous paying earnest money and paying for inspections to find out I wasn't approved after the fact. Not only that but most people won't look at an offer without a pre-approval, and I'm not sure how well his word that I would be approved would hold up. 

On a side note, if anyone knows any small banks or lenders that do 203k loans in Louisville Kentucky please let me know.

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James WilcoxBusiness Member
Real Estate Agent · Bowling Green KY ~ Lexington, KY · Member since 2015 · 1k+ posts · 602 votes
10y

@Major Robertson @Jeff McMahan is correct. If you want to qualify for a FHA loan you have to make the purchase on your primary residence. You can use a FHA for an investment property only if you live in one of the units. Unclear if you planned on "house hacking" but it is a great way to get into REI. Sometimes you can use the income of the other units to help qualify for the loan as well.

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  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    10y
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  • Major Robertson
    OP
    Investor · Louisville, KY · Member since 2014 · 142 posts · 77 votes
    10y

    Alright thanks for that information, that makes me feel a little better. 

    My debt to income ratio is lower than both the 31/43 rules. My credit score is 680, no bad credit just working on building it. My main concern is that I've only been employed for a little less than a year. However I was told that since prior to employment I was in schooling for the field I'm in now that it won't be an issue. But I don't have any tax returns and won't get my first W2 until the end of January. Also about half of the down payment will be "gifted".  

    Does this reduced my likelihood of being approved?

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  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    10y
    Originally posted by @Major Robertson:

    So I called a mortgage broker as I found a house I'd like to purchase and renovate with a 203k loan. The mortgage broker said that you can't get a pre-approval for an FHA 203k loan and doesn't know anyone that would do that. He said he would be willing to write a letter stating I would be approved based on the information I gave him. He told me that he has done 203k loans before.

    I did research on 203k loans before and have seen people get pre-approved. Does anyone know why he told me this or if it's true that you cant get pre-approved for the 203k?

    I'm skeptical about him not offering pre-approvals and would be nervous paying earnest money and paying for inspections to find out I wasn't approved after the fact. Not only that but most people won't look at an offer without a pre-approval, and I'm not sure how well his word that I would be approved would hold up. 

    On a side note, if anyone knows any small banks or lenders that do 203k loans in Louisville Kentucky please let me know.

     Hi Major! You should have no issue getting a pre-approval for the loan, as you would for any other loan. I would advise you to trust your gut, perhaps its time to pursue an alternate lender. You are absolutely correct!  You want this document in hand, worst case scenario you find out he does not do this product, once your offer is accepted. It sucks to have to seek out a new lender last minute under pressure.

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  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    10y
    Originally posted by @Major Robertson:

    Alright thanks for that information, that makes me feel a little better. 

    My debt to income ratio is lower than both the 31/43 rules. My credit score is 680, no bad credit just working on building it. My main concern is that I've only been employed for a little less than a year. However I was told that since prior to employment I was in schooling for the field I'm in now that it won't be an issue. But I don't have any tax returns and won't get my first W2 until the end of January. Also about half of the down payment will be "gifted".  

    Does this reduced my likelihood of being approved?

     Major, you just placed a whole new spin on your situation, you will want to discuss this with other lenders, perhaps before you get to far in your application process in general. 

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  • Major Robertson
    OP
    Investor · Louisville, KY · Member since 2014 · 142 posts · 77 votes
    10y
    Originally posted by @Steven Gesis:
    Originally posted by @Major Robertson:

    Alright thanks for that information, that makes me feel a little better. 

    My debt to income ratio is lower than both the 31/43 rules. My credit score is 680, no bad credit just working on building it. My main concern is that I've only been employed for a little less than a year. However I was told that since prior to employment I was in schooling for the field I'm in now that it won't be an issue. But I don't have any tax returns and won't get my first W2 until the end of January. Also about half of the down payment will be "gifted".  

    Does this reduced my likelihood of being approved?

     Major, you just placed a whole new spin on your situation, you will want to discuss this with other lenders, perhaps before you get to far in your application process in general. 

    I spoke with a broker that does FHA but not 203k and he said it was not a problem and the guy I was talking about in this post also said it would be fine. I'm just concerned that as brokers they are just telling me what I want to hear. I will be doing more research to try and find actual lenders that do 203k loans but it would be helpful if someone pointed me in the right direction.

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  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    10y
    Originally posted by @Major Robertson:
    Originally posted by @Steven Gesis:
    Originally posted by @Major Robertson:

    Alright thanks for that information, that makes me feel a little better. 

    My debt to income ratio is lower than both the 31/43 rules. My credit score is 680, no bad credit just working on building it. My main concern is that I've only been employed for a little less than a year. However I was told that since prior to employment I was in schooling for the field I'm in now that it won't be an issue. But I don't have any tax returns and won't get my first W2 until the end of January. Also about half of the down payment will be "gifted".  

    Does this reduced my likelihood of being approved?

     Major, you just placed a whole new spin on your situation, you will want to discuss this with other lenders, perhaps before you get to far in your application process in general. 

    I spoke with a broker that does FHA but not 203k and he said it was not a problem and the guy I was talking about in this post also said it would be fine. I'm just concerned that as brokers they are just telling me what I want to hear. I will be doing more research to try and find actual lenders that do 203k loans but it would be helpful if someone pointed me in the right direction.

     Major, you are correct they are telling you what you want to hear, just contact another lender and ask the hard questions, sometimes you may not want tot hear something but at minimum it will put you in the right direction to get to your goal. I am not a lender, but I work with a lot of clients who use this product, so we engage with many lenders as well, I can certainly tell you that you should be able to get a letter if you are truly qualified, letters are just the begging, do your homework. Just go to a bank, if you do not feel confident with a broker, you can go to another bank, you are located in Lexington, KY? 

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  • Major Robertson
    OP
    Investor · Louisville, KY · Member since 2014 · 142 posts · 77 votes
    10y

    Great, thanks for your advice. No I am located in Louisville KY

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  • Jeff McMahan
    Real Estate Professional · Smithfield, KY · Member since 2015 · 17 posts · 2 votes
    10y

    Major,

    As stated above, a 203K loan is a subset of an FHA loan. FHA loans are only for homeowners who are going to live in the property, so you cannot use an FHA loan to buy an investment property.

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  • James WilcoxBusiness Member
    Real Estate Agent · Bowling Green KY ~ Lexington, KY · Member since 2015 · 1k+ posts · 602 votes
    10y

    @Major Robertson @Jeff McMahan is correct. If you want to qualify for a FHA loan you have to make the purchase on your primary residence. You can use a FHA for an investment property only if you live in one of the units. Unclear if you planned on "house hacking" but it is a great way to get into REI. Sometimes you can use the income of the other units to help qualify for the loan as well.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    Hi Major,

    From your post it seems you are wanting an absolute to feel better about putting up EM and paying for inspections.

    The reality is that doesn't exist and any mortgage broker or direct lender that tells you that you need to run from them.

    From what you have posted your situation has a lot of hurdles to overcome to get a loan. Score is low, job income and trade is newer, using a gift for down payment,etc.

    I am not a lender or a mortgage broker however there is a very high chance that you will undergo manual underwriting instead of desktop to have any chance of a loan approval.

    On the EM try to make it as small as possible and also try to build a bunch of outs (contingencies) in the contract. On the inspection many states do not have a requirement that inspectors are licensed. So you could have a failed real estate salesperson as an inspector or a hobbyist that does it on the side etc.

    You do not want to pay retail rates for an inspector. There are specific inspectors that work with investors for a lower fee and have completed sometimes thousands of inspections personally. Make sure with their company they do not push you off onto a newly hired inspector and demand you want the experienced person to conduct and look at the property.

    Sometimes the company has great experience but the worker is inept so you have to watch for that.

    Inspectors usually charge based on the sq ft of the house and if they have to crawl under a foundation or it has a basement etc. So if you were looking at a smaller property maybe 200 bucks or so for an inspection. If you do not end up buying that property sometimes the inspector will give you a reduced inspection fee on the next one.

    The more expensive cost will be the appraisal. That is what you will eat the cost on for sure if the deal doesn't go through. Those use to be cheaper but are now getting very high. I have seen a 500 dollar  appraisal fee on a 200k house.     

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  • Melissa Gittens
    Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
    10y

    Hi @Major Robertson I would suggest shopping around for a mortgage company. There are so many out there that you should look around for one. Some banks do no do 203K loans but keep looking because I am doing on right now here in Connecticut with a mortgage lender from New York that is doing a 203k loan for me. Since I was in school for majority of my career they recently asked me to show my diploma for my masters. They understand that people are coming out school so to strengthen my application they will suggest giving certain information. 

    My advise to you is shop around because you are bringing them business and you have to make sure that they understand that you are not begging for a mortgage. See what they can offer to you. 

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  • Major Robertson
    OP
    Investor · Louisville, KY · Member since 2014 · 142 posts · 77 votes
    10y

    @Jeff McMahan and @James Wilcox Yes I know how a 203k loan works. I will be living in one of the units.

    @Joel Owens No I am not asking for an absolute at all. I'm asking for a pre-approval which is more than a fair request. I understand that even with a pre-approval things can go wrong but going in without it seems like a risky thing to do. Also I wouldn't say my score is low, it's well above the minimum required. Apparently schooling + 1 year of income is acceptable from what I've been told. Does anyone has any experience with that?

    Thanks for that information on inspections, it was very helpful. 

    @Melissa Gittens Thanks for that, however there seems to be a very limited amount of lenders doing 203k loans in my area. I will do more research though. 

    Thanks for everyones input, however the the answer to the original question is still unclear. Can you get a pre-approval for a 203k loan? If so, do you have to have the house picked out first?

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  • Melissa Gittens
    Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
    10y

    @Major Robertson you do not have to have the home picked out first in order to get a pre-approval for FHA 203K loan.

    0Reply
  • Mike Wood
    Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
    10y

    @Major Robertson I think others have answered your question. Your pre-approval will be based on a your specific details (income, credit, debts, etc) and will give you a maximum amount of loan you can qualify for. These pre-approvals are not normally specific to one loan produce (i.e. a FHA 203k loan).

    Any bank can review your information and provide a pre-approval. I would recommend working with a bank that also does FHA 203k loans, so you are wasting both of your time.

    As a first time buyer, I would try and stick to banks, and not mortgage companies.  You will same money by using a bank, as they have less fees than mortgage companies.  I have only use a mortgage company once, and I was shocked with how high the fee's were.  I now only use banks (I have not reached my 10 loan limit yet).

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  • Adam Shelley
    Investor · Louisville, KY · Member since 2014 · 39 posts · 49 votes
    10y
    Hi Major. Have you spoken with Amerifirst? They're the only 203 lender I could find in Louisville. Can't remember the guy's name but he seemed nice enough. http://www.amerifirst.com/kentucky
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  • Kevin Allen
    Louisville, KY · Member since 2015 · 166 posts · 83 votes
    10y

    have you tried river city bank?  I believe they offer them.

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  • Adam Shelley
    Investor · Louisville, KY · Member since 2014 · 39 posts · 49 votes
    10y
    River City is a portfolio lender. They don't do FHA.
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