FHA to investment?

[Ryan Dossey]

So I have a beginner question. I was speaking with a guy I work with who has just recently started in REI. He bought a SFR 3/2 that was a foreclosure for right at 50k a few months back. He decided to rent it out and have the tenant pay cash. (I know this part of his "model" is unethical being an FHA). He has now decided he wants to convert it to an investment mortgage and said he has enough equity to do so with no out of pocket expense. Could I buy a foreclosure to live in for a few months to a year till it builds equity enough to cover the 20% down payment they require? I realize this would only be beneficial to someone who doesn't currently own a home and can't drop 20% down. Is that really do-able?

[Joel Owens]

People use FHA to put 3.5% down but insurance is high.

FHA does not do investor loans for single houses. You will sign an OWNER AFFIDAVIT at closing saying that you will occupy the property. To not do that and rent it out right away is fraud and you can be prosecuted for violating the law.

Of course there are exceptions and hardship rules with which you need to be familiar with. You could just go FHA and buy a duplex, tri-plex, quad and take advantage of FHA 3.5% down and live in one of the units and rent the rest out.

Underwriting the loans and the borrower for how much they put down has a main component of are they living there or not?? If it's purely an investment statistically when things go wrong owners can walk away versus where they sleep at night. Lenders know this which is why rates and down payment are different. The fraud part  is saying you will be living there and then not doing so to get 3.5% down and better interest rates.

Just be careful and make sure you do everything right and understand it all. There was a topic on here awhile back where the mortgage broker told them it was okay to go FHA. It closed and then the buyer got into a ton of trouble and had to spend a bunch of money and get out of the loan that had closed.

No legal advice.