Using FHA to buy multi unit while rehabbing flip?

Question

Hey all,

So I flipped my first house in 2017 and took a little break afterwards. I recently decided that I want to purchase a multi unit using an FHA loan. My lease is up in August, and I have it narrowed down to exactly what and where I want.

In the meantime, my broker contacted me today about an off market SFR flip that an investor of hers cannot finish. She wants to know if I'm interested. The numbers are there, so of course I am.

There's no way I can close on, rehab and sell the flip by the time I would be closing on my multi unit. I've heard that if you currently own a property, you cannot use FHA to buy a second one. To be clear, the flip will be purchased with hard money in my LLC's name. It will not be a primary residence ever.

My question is this: Will I have a problem trying to close on an FHA loan if I currently own a home in my LLC name that I'm flipping?

Thanks!

Zack Karp · Answer

@Danielle Cage

Let me un-confuse some of these confusing answers...

Can you purchase your MFH using FHA while owning another property in your LLC?  Yes.

Will you need to qualify for the MFH carrying the full PITI payment for the flip home?  Yes.

Will you be able to use rental income from the flip home to offset the PITI.  No.

Will you be able to use the rental income from the other units in the MFH?  Yes.

Hope this helps.  Working with a rockstar LO that understands investors is critical in these situations so that you don't make a misstep and get stuck.  And knowing exactly what you need to do and how to structure so that your mortgage process goes smoothly and doesn't become a trainwreck.

Best of luck!

Harjeet Bhatti · Answer

@Danielle Cage Flipping is business for you. You are buying current home as PR no effect on FHA process. The only thing you have to concern your dti shouldn't be effected by this flip.

Danielle Cage · Answer

@Albert Bui and @Zack Karp thank you both for taking the time to respond! I do understand exactly what you mean. It's not that FHA will have issues with me owning the property, it's that the extra hit on my DTI is something to consider. Since I partner with others through the LLC and we share expenses, I would hope that would be taken into consideration. I have a call out to my broker, who is returning tonight.

Thanks again!!

Albert Bui · Answer

THE FHA lending answer is yes you will have problems assuming you do disclose all your assets and liabilities truthfully on your 1003/loan application when you go to file it.

Even if you didnt disclose it the lender (some lenders not all) will pull up secretary of state and in IL i believe its a disclosure state where your name as a manager/governor/organizer may be listed so they may see your flip property and hit you for the full property tax, insurance, and monthly interest only payment on that HML note. They will also ask for a copy of your insurance deck page (rehab vacant policies are super high) and mortgage note to verify the monthly payment.

So its best you probably sell this "flip," prior to applying for your 2-4 unit FHA house hack purchase unless you think your qualifying income right now is enough to qualify for your FHA purchase and carry that HML payment on the flip simultaneously.

If you're a high W2 or self employed income earner you may be able to carry both and still carry out both plans simultaneously. This is crucial to know up front so you dont get stuck in the flip and have to chose between your FHA acquisition or the completion of your flip.

The mortgage planning aspect is highly important in this perfect case study of an example.

Best of luck,

Nghi Le · Answer

I believe the rule is if you currently have an FHA loan, you can't get another (until you refinance out of the FHA loan).  So you should be okay.  And the flip shouldn't count against you anyway because it's in your business name and not your name, it's not a primary residence, and it doesn't show up on your credit report.

What you might want to plan for is to set aside all the money that you'll need for your flip in your LLC.  The banks will ask for a few months of bank statements and it's just easier if your bank statements don't show big chunks of money moving in and out of your personal account (since you'll have to explain each one) for the flip.  Also make sure you have enough money sitting in your personal account to meet the requirements of the FHA loan (i.e. don't move all your money to the LLC).  You should probably consult with a loan officer right now to plan for your purchase in a few months.  I can recommend one if you don't already have one.

Danielle Cage · Answer

Thank you everyone for your responses! My lender is out of town for the weekend so before I took the time to analyze and view the flip, I wanted to confirm. I feel much better about putting an offer in on the house.

Using FHA to buy multi unit while rehabbing flip?

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