VA vs FHA vs 203k - What would you advise?

Question

Hi Everyone! I was hoping to get a little advice from those that have dealt with either a VA, FHA, or a 203K loan. I am currently looking at these to purchase a tri- or four-plex; I am looking for something that needs a little fixing up. I have some equity saved up from another SFR that I could use but I would prefer to leave that untapped (unless you think otherwise).

What are your experiences/thoughts on these financing options (any loopholes or regulations I should be aware of)? I do know about the cap for the VA loan and I believe we are still under that (still doing my research).

Thank you in advance for all of your help!!!!!! :D

Peter Pasternack · Answer

Hi Rosy. I wanted to give you some additional information on the 203K renovation loans. The lender puts the renovation money in a separate account. They then send out an inspector to check and see if the work has been done. Once the work is done they usually do a check to you and the contractor for payment. Renovation loans can be a great tool to leverage your money.

Andrew Mugo · Answer

Thanks for the advise, with regard to the FHA203, is there criteria with regard to how little work needs to be done to qualify? IE can you qualify if all that's needed is heavy TLC?

Alf Penland · Answer

Andrea is exactly right.  There is a VA funding fee and depending on what type of service you were in determines your funding fee amount.  I was National Guard and my funding fee on my first home purchase was roughly $4,000, which is in addition to normal closing costs.  Active duty is less, but still around $2,000 or so.  It may also depend on the value of the property, although I'm not certain of that.

Andrea Valenzuela · Answer

Hi Rosy! I'm in the military myself (O2 in the FLARNG) and work as a real estate agent on the civilian side. A lot of the buyers I work with are military and using VA loans. What a lot of them don't know is that there IS a "VA Funding Fee" that is charged in lieu of the PMI. Just good additional info to consider when working your numbers :)

http://www.knowva.ebenefits.va.gov/system/template...

Perry Farella · Answer

Just to add some thoughts here as a 203k lender. There is a new VA loan that offers a Rehab dollar component to it. Meaning on a VA  loan one can now  borrow at least 35k extra over the  needed loan size, to do rehab on a house that will not pass a VA appraiser inspection or just needs updating. Its still 100% financing too.

You still need a general contractor doing the work as in a 203k but the condition  of the  house can be poor as long as the rehab dollars address all deficiencies. I would check with the  local office of Prime Lending in your state. They are one of only a couple lenders who have rolled this VA Reno loan option out this year.

Chris Mason · Answer

TLDR:

•  VA if the property is below the SFR conforming loan limit (even if it's a 2-4 unit) or you have the 25% down on the difference, and do not need rental income to qualify. VA also is not a model match for "fixer uppers," as VA loans have the highest property/collateral standards of all the Agency loan programs.
• FHA if it's over the SFR loan limit for the area and/or you need rental income from the subject property to qualify.
• Conventional if you want to be a strong buyer that has a higher chance of the offer being accepted.
• FHA 203k if you absolutely must.

Talk to a lender familiar with all of these programs. So one of the 203k-only shops, or a VA-only shop, would not be a good fit.

Kerry Baird · Answer

Pitching my 2 cents in on the VA: when we bought our current light fixer 2 years ago, the VA was fairly strict on the condition of the property.  The VA required there to be at least 5 years of "life" in the roof, as determined by the inspection.  We had an outdated kitchen, which was not a problem.

We also needed to show income, either military service obligation or that we had a firm job offer (or contract) in the same career that we had while in the military.  This means we had to show success in the same career OR two years in a new career.  We can go over the cap on the VA, with different costs above the cap, and we can use the VA to buy up to 4 units, with one of those owner occupied.

Melissa Kirchhoff · Answer

@Rosy Bruno - As an agent who works with a lot of FHA, USDA and VA loans, I'd like to add to this information that those must pass an appraisal inspection. Now the level of how strict those rules on vary appraiser to appraiser. In my area, we've had a couple of very severe nit pickers (one got rejected for peeling paint on a metal clothes line) and others frankly give anything the thumbs up. So who certain lenders use can really affect the results. I prefer certain lenders doing government issued loans for this reason, so my advice to you would be to try to get answers on that if you are looking to purchase something with either FHA or VA.

Also, it's a good point on the 203k rehab loan. However, if you network or know some general contractors...

Otherwise, if we were looking at all these on a level playing field (let's say buying something that just needs updating but would pass inspection) then I agree with @Nick G., in my experience, the VA is the unicorn of loans. Lots of benefits, super low APR in comparison, it's magical (as it should be!)

Rosy Bruno · Answer

@Nick G. all good points and thoughts! Thanks again for the vast info. I'm feeling more and more like a VA is the way to go. I'll have to get with an advisor to see where my cap is and go from there I suppose.

VA vs FHA vs 203k - What would you advise?

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