Private Investor Refi or Suggestions on How to Move Forward

[Jalen Greenlee]

Hey!

Last month, my wife and I purchased a fantastic duplex in Madison, WI, for $400,000 using an FHA loan. Our plan was to do the traditional house-hack, but things haven't gone as planned.

During some self-testing followed by professional testing, we discovered lead in several high-traffic areas of the home. Since the house was built in the 1940s, we should have tested for lead during the inspection. Unfortunately, we weren’t fully aware of how severe this issue could be, and now we’re facing the consequences.

The Current Dilemma

My wife is pregnant and due to give birth next month. The lead issue, coupled with an overall discomfort with the neighborhood and the home itself, has significantly impacted her mental and physical well-being. Naturally, she wants to be in a more comfortable environment to welcome our son into the world.

However, there's a legal hurdle. With an FHA loan, we're required to live in the property as our primary residence for at least one year. The only way to bypass this requirement legally is to refinance into a conventional mortgage. Unfortunately, we can't do this for another 200 days due to FHA restrictions.

Exploring Alternatives

One potential solution I’ve considered is working with a private lender. Here’s the idea:

• A private lender could pay off the FHA loan, allowing us to give them the first lien on the property.
• This would free us from the FHA restrictions, enabling us to move to a more suitable living situation while addressing the lead issue at a later time.

What I Need Help With

1. Private Investor Leads: Does anyone know of private lenders who might be interested in exploring this option?
2. Other Suggestions: Are there alternative strategies I haven’t thought of that would allow us to move legally and responsibly under the current circumstances?

We’d deeply appreciate any advice or insights. This situation has been incredibly stressful, and finding a viable path forward would mean a lot to my family.

Thanks in advance for your help!

[Tim Delaney]

I am not an expert in either lead or FHA, but here are a couple thoughts for you to look more into.

By lead in the unit do you mean paint? I have lived in (with a small child) and own multiple pre-1978 homes that most likely had lead paint in them. When my places with section 8 tenants are inspected yearly the inspectors just want to be sure that the paint isn’t flaking and thereby causing a situation that a small child may ingest the paint chips. Other than that the lead paint does not pose a significant danger. Maybe your situation is different and if you don’t feel comfortable in the neighborhood then this may be a moot point anyway.

As for FHA, my understanding is that you must intend to live in the house for a year  it sounds like you did intend to, but due to unexpected circumstances- lead exposure and unexpected unsafe neighborhood- you have to move. Obviously speak to a lawyer or someone with more knowledge, but I have heard of people leaving their FHA home before the first year is up for much worse reasons. 

[Erik Estrada]

I think where you will be questioned the most is on the new purchase transaction since you have owned your current home for under 12 months. If you have a high income and can support 2 mortgages with your DTI, then providing a solid LOE for your circumstance may suffice. However if you are attempting to use rental income for your departing residence that's where it will be a little tricky...