203K and FHA Loans. Which one?

Question

Hello BP community-

I am currently in search of my first investment property as a "buy an live". I am currently renting in a apartment and I am sick if throwing my money away to the person I aspire to be.  I want my first purchase to be a small to medium multifamily home(preferably a duplex or triplex). Since this is my first purchase and I would be living in it for 1-2 years until another deal comes along, I believe I would qualify for FHA or a 203k loan. My question is this..If you were me in my situation, what type of loan would you use? Would you go a different route other than FHA or 203K? Any tips you would like to share as well please feel free. Thank you.

Mathew Weissman

Bill Rich · Answer

Hey Guys

I can speak from the perspective of a lender who does a lot of 203K's and 203B FHA loans.  Both loans are great loans and each have a lot of benefit to offer.  From my perspective, the 203K is not a difficult loan to do if you are working with the right lender.  You want to make sure the lender that you are working with has expertise in this program.  It is the lender who "offers" the 203K but does not really know the ins and outs where the difficulties come into play hence everyone saying its more difficult to complete.  The 203B FHA loan is a great one if the home does not need any work down to it and you are just looking to get into a home with little money down.  If you are buying a multi-family property you can use the rental income from the other units as well to help you qualify.     There is a lot of information on the internet some good but most bad so if you have any specific questions about these programs please feel free to ask.

Bill Rich · Answer

@David Murphy

The PMI is paid on the entire loan amount (rehab + purchase price).  PMI rules are the same across the board for ALL FHA mortgages, not just the 203K.  FHA rules are pretty simple when it relates to PMI and when and if it can come off.  If you are putting 10% or less down the PMI stays on the loan for the entire term of the loan and does not not come off unless you refinanced out of the loan into a conventional loan at some point down the road.  If you put down 10% or more then the PMI comes off once you hit the 11 year mark on the mortgage.  You cannot appeal to have it removed or have a new appraisal completed.  FHA rules are cut and dry. I hope this helps.

Mathew Weissman · Answer

@Bill Rich Excellent information you have provided to me. I will further educate myself in 203k and 203b FHA loans. Appreciate the help!

Mathew Weissman · Answer

@Cheryl Schuck Thank you for your input, it's good to know I can utilize a 203k loan as an option in this area.

Cheryl Schuck · Answer

I agree with Ron.  We do not have an issue in this area with sellers accepting a 203k loan.

Andrew Postell · Answer

@Mathew Weissman for your first property I would recommend just seeking a traditional FHA loan and not a 203(k) loan (if those are your only two options).  The 203(k) is a pretty complicated loan and most sellers won't accept that loan type as the priority offer on their house.  A FHA loan is a great option to buy a multi-family home to live in and rent.  Feel free to ask any further questions.  Thanks!

Account Closed · Answer

@David Murphy 203k does allow you to use the ARV to determine LTV so if you have the possibility of lower PMI with still 3.5% down if your (rehab + purchase price) is under the ARV. It is not much of a variance but saving anything is cool.

David Murphy · Answer

@Bill Rich I've enjoyed reading this thread and wanted to ask a question.  After looking at various internet resources, I haven't seen an answer to these two particular question.

• When getting approved for a 203k loan, is there PMI paid on the entire balance of the loan amount (rehab + purchase price) like I assume it would be?
• Do 203k loans require the buyer to actually pay the PMI until they have paid off 20% of the loan amount or can a buyer get out of paying PMI once their property appraisal shows they have 20% equity and a new loan is used (if needed)?

Mathew Weissman · Answer

@Andrew Postell I will definitely keep you in the loop!

Andrew Postell · Answer

@Mathew Weissman I'm glad more people from your area weighed in. It's good to hear that sellers are accepting 403(k) loans readily there.  The ultimate question with your bank is that if they will use your rental income on this property to qualify you.  Keep tagging our names as you go through the process to keep us in the loop on this.  I'll keep my fingers crossed that we never hear from you again since that would mean that everything went well!

203K and FHA Loans. Which one?

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