Qualifying For An FHA-Insured Loan - Help?

Question

Hi BiggerPockets,

I am reading Brandon Turner's Book on How To Invest in Real Estate With No or Low Money Down.

I'm unsure if I will qualify for an FHA-insured loan for certain reasons. First of all I am a full time undergraduate student pursuing Business and Economics. Because of my busy schedule, I currently make my income by driving for Uber and Lyft, which are great because they are very flexible. I would like to invest in a multi-family property very soon, which I would occupy while renting out the other unit(s).

I am very "smart" with my money and have begun saving the majority of my Uber/Lyft income, about $2,200 out of $2,400 per month.

Would this be a solid or stable enough source of income to qualify for a foreclosure with a price tag of about $190,000 (below market value) through an FHA-insured loan, assuming I continue with the same income and have a savings of about $16,000? What sorts of income can be used to qualify for an FHA-insured loan? My credit score is excellent, but I only have about 6 months of credit history as well.

What sort of down payment could I be looking at? 5%...maybe even 3.5%?

I already have a private lender willing to pitch in $20,000 for needed home repair costs, and a family friend who is a contractor willing to help with repairs.

I would prefer the lowest down payment option, as my goal would be to have the unit(s) filled within 2 months so that I can generate enough income to create positive cash flow, even if only a couple hundred in the mean time.

The location I am looking at has began a process of gentrification which is slowly driving housing prices up, now is the best time to invest and I am eager and excited to educate myself on ways I can get my foot in the door now, literally.

Any and all help is immensely appreciated!

Raquel Pea

David Dey · Answer

Hey Raquel

Here's my 2 cents:

First, regarding an FHA loan, the best thing you can do is go ahead and get pre approved.  His way you'll know right off the bat what you qualify for and what you don't.  (The best thing you can do in starting out is line up your money before you need it)

Second, the concept of no and low money down investing is really the art of "professional problem solving."(trademark pending😜)

Now I won't go into detail on the concept, but here is a link to a post where i covered it thoroughly.

https://www.biggerpockets.com/forums/62/topics/243269-answer-to-those-calling-you-vulture-stealing-houses-from-grandma

Bottom line, whether or not you qualify for a loan does not disqualify you from investing.

Simply find problems you can solve and you will be well on your way.

P.S.  I just looked at your profile and noticed your offer to trade services for mentorship.  Bravo!!

I see from this post and the other one I responded to, your main concern is limiting mistakes.  Well, the absolute best way to avoid beginners mistakes is to work with someone who has already made them.

(Full disclosure, instead of rewriting this out, I am reposting my response to @Merlina Rodas who is in a very similar situation. Which by the way, she is in your age range as well and has the same aspirations, I recommend you touch base with her, you guys can become accountabilibuddies (also trademark pending)🤑

I believe the real estate industry is one industry that truly needs to go back to the tradesman/apprentist system.

My recommendation would be to do exactly what you are proposing to do, seek out a veteran investor in your area, (Not a guru) offer your services as a birddog, assistant, partner on deals, etc.  in exchange for the education from doing these deals.

Let them know that you are willing bring them deals to review and even help with the money (Since you said you're saving up money to do deals) and will partner with them, just for the experience.

So where to find these professionals, go into your local public records and pull up deeds from the last month or few months and weed out only businesses or obvious investors from the deeds.  (Obvious investors would be when you see the same person on multiple deeds in the same county.  Chances are they are not picking up multiple second homes in the same area)

When you have pulled up a number of investors, do a name search on them to make sure they have been successfully doing deals for awhile, (this would be seen by the second deed on the same property going out at a profit)  and that they aren't in any lawsuits and stuff.

Once you've identified the investor you want to work with, find their contact info (not difficult to do, try googling their company name or their personal name and many times you will see their name associated with ads to buy or sell property)

Well, it may not be the sexiest advice you've gotten today, like "just do it," or "have a positive attitude," (all of which is very good advice) but I promise you, if you would rather not make your own mistakes then learn from someone else's.

Hope this helps!!

P.S.  If you need help actually doing what I recommended.  Feel free to PM me and I will walk you through it.  (The system also works for finding deals and buyers for wholesale deals, etc)

David Dey · Answer

Thank you for your kind words.  This part I can help with out here and if you want to work on your specific county and situation, then that we will work on individually.

Actually, your's is not a newbie question.  Most investors don't really understand public records, though it should be one of the first things they learn.  There is no more powerful tool you can have in your toolbox to be a successful investor.  No transaction takes place unless it shows in public records.  As a result, every seller, and buyer is right there at your fingertips, even all the money you will need to put it all together.

Explanation: (deals) Every foreclosure, bankruptcy, divorce, code enforcement issue, probate, etc.. Takes place, (all problems that you can solve in exchange for equity) it shows up in public records.

(Buyers) Every time an investor buys a property, you can find them in your public records.  (these are not tire kickers, the only reason you'll see them is because they pulled the trigger.  Once you find them, you can present them with deals)

(Money) every time a private lender lends money, buys a mtg, satisfies a loan, it's all there in public records.

(Not only will public records identify the lender, but in many cases will show you what they lend on and their terms)

Ok, so there's my quick soapbox speech.

So the most important site you will need for this type of research is this.  Netronline.com  this is a portal site that will take you to public records for every county in this country. (And the best part, it's free!!)

Go to the site, click on the button, public records online.  It'll take you to a map of the US.  Click on your state, then your county, then you will see links to your county assessor/appraiser, clerk of courts/register of deeds, and tax collector, amongst other options.  The clerk of courts/register of deeds is where you'll find most of the info we just discussed.

Hope this helps.

Raquel Pea · Answer

@David Dey Thank you for the connection with Marina Rodas, sure we'll be "accountabillibuddies"!

Thank you also for the information on how to find investors to shadow, this has been somewhat of a mystery to me that not many people seem to touch upon. This may be a newbie question, but where exactly would you recommend I look through, is it the online public records for my county? I will PM you for this. :)

The advice you give is so much better than the "just do it" and "have a positive attitude" type of advice, it is tangible and I can take action now.

Immensely appreciated!!

Albert Bui · Answer

HI Raquel,

I am a lender and investor and if I were to advise you as your loan officer I would make sure you took your year end 1099 forms and filed taxes with that income (most likely on a form called a schedule C). We would then taken the net income number on this schedule of your tax return and add back certain deductions you write off as expenses (home office, depreciation on your car, and other items we can add back to make your income look better).

Generally we'll average your last 2 years. If you dont have two years of income history then you may not qualify however there are programs utilizing only 1 year of tax returns (conventional financing only). FHA programs you mentioned above require 2 year average so thats a key to note.

Down payment can be as low as 0% down with FHA if its a 1 unit primary residence however if you're looking into 2-4 unit then you'll need your own 3.5% of the sales price in terms of down payment funds. You'll also need monthly payment reserves too if you buy a 2-4 unit property, up to 3 months of reserves required of the entire monthly payment.

If you buy the property under market enough you may be able to refinance as a conventional loan after 6 months of payments on the FHA acquisition loan to remove monthly MI as well. This would increase your cash flow since it lowers your monthly obligation/payment.

so the question is, how do your tax returns look current for 2013 and 2014 (2015 coming up) and do you have the down payment and reserves? How is the credit ?

(we're looking for 3 accounts/tradelines with atleast 12 months on time payment history)

Planning this ahead of time will make your first property purchase a much "smoother," experience.

Let me know if you have any questions,

Best of luck,

Qualifying For An FHA-Insured Loan - Help?

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