Pre-approval for an FHA 203(k) loan or a USDA loan?

Question

Hello BP!

This is my first post in the BiggerPockets forums - I searched through the database and didn't find an answer to this question yet, but forgive me if I overlooked it somewhere.

I am currently going through my options to buy my very first investment home - I was originally hoping to go the FHA route, multifamily home, "house hack" or live-in-flip - which would require me to go with the 203(k) option to force appreciate some equity, as well as, to gain some landlord experience and passive rental income.

After reading Brandon Turner's book, he opened my eyes to the USDA loan option. To my understanding - you cannot use the USDA loan to buy a multifamily property to do the things I mentioned above - but it does allow me the option to still gain some equity through a forced appreciation. (correct me if I'm wrong)

The 0% down and lower MIP rates are intriguing to me, as well as the option to be able to roll in some cosmetic rehab costs into the loan.

I am still trying to decide which route to take, so any input would be greatly appreciated on your personal experiences, BUT my main question is this, and forgive me if it is a silly one -

Can you get pre-approval through these loans (to ultimately find out how much I can borrow) without having a specific house for them to look at? To my understanding - a lender will only pre-approve on specific properties that will match up with their underwriter's guidelines. I want to know, with my current financial situation, what I can even afford (by the lender's standards) before I dive head first into a property.

Thank you all in advance!

- Jason

Andrew Postell · Answer

@Jason Wright yes, you can be preapproved for either of these loans and it 100% free to do so.  Your preapproval is good for about 3-4 months so if you are in the next few months I would highly recommend being PreApproved.  The FHA 203k loan is a pretty detailed loan so here's what to ask your loan officer about to see if they have knowledge on this product:

• What is the difference between the "Full" and the "Streamline" 203K product?
• What consultant do you recommend for this type of loan?  When is a consultant required?
• How long is your closing process?
• Can you describe the draw process and if I have say when the contractor gets paid?  What if I am not satisfied with the work?
• How does your bank approve my contractor?
• How much in "contingency" funds am I required to have?

If your loan officer can answer those items thoroughly without having to go research the answers then you will have a good lender at your disposal.  Let us know if you have any other questions. Thanks!

Jason Wright · Answer

@Andrew Postell and @Jeff Onofrio Thank you SO much for the help on which questions to ask. This is a great starting point for me - If I understand correctly - if you are able to find a home that only requires $15k or less in rehab costs, you can roll that into the FHA 203k "streamline" without having to get a FHA certified contractor? Also, I have "good" credit (right at 700) but my current job situation is an interesting one - I receive a monthly salary that is paid on top of receiving room and board. In other words, my income on my pay stub is not a whole lot, but the total value of the room and board (I pay for nothing else out of pocket - gas for my car, utilities, internet, groceries, and so on) is valued at much more. Is this something that is able to be conveyed to a lender and taken into consideration? Also, if my goal is to purchase a multifamily home - live in one side and rent the other side - do they (and if they do, how will they) include the potential rental income into the mortgage if I don't have a property yet chosen?

Jeff Onofrio · Answer

@Jason Wright Hi Jason and welcome to BP.  You can definitely get pre-approved for any loan option without a property.  This will help you to go through all the different loan options that are out there and help you to decide which product - A- that you qualify for and B- fits your specific needs.  USDA loans have some big limitations- the property must be in a USDA area and you have income caps.  203k is a great option if you find the right property.

My recommendation is to speak with a loan officer that understands both products in detail - not many loan officers will be fluent in both of these products so get recommendations and read reviews.

Good luck and happy investing!