Breaking FHA rules.

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Breaking FHA rules.

Account Closed
Contractor · Westmont, IL · Member since 2018 · 44 posts · 31 votes

My girlfriend and I live in a house (with a conventional mortgage) that we don't wish to move out of. I want to get into rentals, but don't yet have the capital to put %20 down on a sfr in my area. I do however have the money to put 3.5% down on a duplex or triplex. Someone recently gave me the idea of acquiring a triplex with an fha loan, rehabbing two of the units, renting them out, and taking my time with the third rehab. Or even rehab all three, rent two out and air b&b the third until the one year is up. Then I would rent out the third as well. Clearly I'm talking about getting an FHA, and then breaking the rules by not moving in.

My questions are:

1. What is your take on this?

2. What are my odds of getting caught?

3. What are the ramifications of being caught?

4. Hypothetically, if I couldn't possibly get caught, is this plan a smart one?

5. Should I refinance (brrrr style) after renting two out, or after the year has past and I have all three rented out, or not until the mortgage is paid down enough to remove the PMI?

Other notes:

I'm in Illinois

I'm a plumber

I have a good credit score

Sorry if my post is dumb

Thanks!

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Originally posted by @Account Closed:

2. What are my odds of getting caught?

 Are you asking about your odds now, or are you asking about your previous odds back before the very first google search result for "your name real estate" is your biggerpockets profile that links to this thread...? 

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  • Alex Doce
    Lender · Miami, FL · Member since 2019 · 10 posts · 4 votes
    7y
    Originally posted by @Antonio Flue:

    @Kirk Perecich FHA flipping rules are 90 days before you sale it. So no you shouldn't get Caught if you want to rent it out but you would get caught if you tried to sale it. I do know someone who got caught by trying to refinance. They made them pay the 20% down payment

    There is no 90 day rule on the SALE of a FHA financed property. FHA will not allow the FINANCING of homes considered a flip less than 90 days from the deed recordation date. There are certain transactions and sellers that are excluded from this 90-day rule

    0Reply
  • Daniel Schiller
    Rental Property Investor · Houston, TX · Member since 2014 · 91 posts · 76 votes
    7y

    @Kirk Perecich lots of posters really jumped you with bad information on this thread, but basically:

    1) don’t post hypotheticals related to skirting federal requirements on public forums. Bounce ideas off a real estate specific attorney.

    2) the not living in the property scenario is not workable, and just makes no sense when you can buy a multi-family property legally (house hacking), meet residency requirements then move out and rent the unit you lived in previously. Good info here:

    http://www.fhahandbook.com/blog/buying-a-duplex-home-with-fha/

    3) check this link for info on 201K FHA rehab loans: https://thetexasmortgagepros.com/fha-loan-requirements/

    4) attempting to get cute on small deals involving anything government related is generally an awful idea. Almost every government regulatory algorithm starts with base pattern disruptions relative to geographical areas, and throwing small fish in the cooler is a lot easier than catching that elusive marlin. Your “will I get caught” question is basically “will the officer make me get glasses if I don’t pass the vision test at the DMV”, with an extra option for green eggs and new roommates. Depends on the the side of the bed the bureaucrat that sees your ping woke up on.

    Stay smart, and good luck with your endeavors!!!

    0Reply
  • Michael J. Beasley
    Long Beach, NY · Member since 2018 · 29 posts · 29 votes
    7y

    @Chris Mason

    Hahahahahahaha

    0Reply
  • Michael J. Beasley
    Long Beach, NY · Member since 2018 · 29 posts · 29 votes
    7y

    @Kirk Perecich

    I think that’s a question that’s on a lot of new, prospective investors’ minds. I’ve wondered the same thing. In the Midas Touch (Kiyosaki/Trump book), they clearly outlined that business is built by playing by the rules. Trying to take a shortcut only ends up putting you behind in the game and even if you “get away with it”, you stunt your growth and forgo the lessons learned through playing the game by the rules. Don’t feel bad about keeping It real 😜

    0Reply
  • Account Closed
    OP
    Contractor · Westmont, IL · Member since 2018 · 44 posts · 31 votes
    7y

    @Bill Plymouth Thanks. Yeah I have no intention on breaking a law. I've been private messaged by people saying there's ways to go around the move in rule that doesn't actually break the law, but still I'm more interested in getting a conventional loan using OPM. But yeah, not interested in cutting corners. I hope people stop mischaracterizing me based on a question on the internet. My curiosity in this certainly exploded on the forums quickly

    0Reply
  • Bill Plymouth
    Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
    7y

    @Account Closed I apologize if i gave you an prejudging impression.  Not my intention.  After re-reading my comment I could’ve worded it differently that still conveyed my same message!  O hope it all works out.  

    0Reply
  • Elliot Saks
    Los Angeles, CA · Member since 2017 · 20 posts · 7 votes
    7y

    .

    0Reply
  • Bill Rich
    Lender · Marlton, NJ · Member since 2016 · 126 posts · 44 votes
    7y

    @Antonio Flue 

    I am sorry but your advice is not good advice at all. This has nothing at all to do with FHA's flipping rules as he could sell the house right away with absolutely no risk or legal issues. The FHA affidavit requires you to live in the home for first 12 months the home is owned. If its sold then the rule does not apply. FHA flip rules have to do with a buyer and the buyers ability to secure financing on the property being sold. If @Account Closed were to refinance out of the FHA loan and into a conventional loan as an investment property then he would be fine as well and he would not be caught doing anything.  He is simply honoring the requirements of the loan.  Your friend who got caught did something else that led to the action.  

    As for your comment about FHA not doing anything. That could not be more wrong. FHA will send agents to do door knock audits to ensure you are living in the home. If they deem you are not living there they can file a report with the FBI and the FBI could pursue the mortgage fraud claim and FHA will call the loan due immediately. FHA also does allow you to buy homes that need work using the 203K and this is not a hard program at all. In fact its quite easy as I originate 70-80 of these loans per year.

    If I could give a little advise, and please do not take this the wrong way, leave the mortgage advise to the professionals for what you advised could get a person into more trouble.

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Bill Rich:

    @Antonio Flue 

    As for your comment about FHA not doing anything. That could not be more wrong. FHA will send agents to do door knock audits to ensure you are living in the home. If they deem you are not living there they can file a report with the FBI and the FBI could pursue the mortgage fraud claim and FHA will call the loan due immediately. FHA also does allow you to buy homes that need work using the 203K and this is not a hard program at all. In fact its quite easy as I originate 70-80 of these loans per year.

    If I could give a little advise, and please do not take this the wrong way, leave the mortgage advise to the professionals for what you advised could get a person into more trouble.

    My guess is less than .001% of loans are audited and no FHA cannot supersede state laws and call a loan due immediately. The lender has to go thru the same process of foreclosure. The reality is the institutional investors that purchase FHA loans have no desire to foreclosure on a loan that is current

    0Reply
  • Bill Rich
    Lender · Marlton, NJ · Member since 2016 · 126 posts · 44 votes
    7y

    @Greg H. no, FHA can call the loan due if there are grounds for fraud. I have seen it first hand and its far more than .001%. Working in the mortgage industry for nearly 15 years, I have talked to many entities and individuals about this including people at HUD.

    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Bill Rich:

    @Greg H. no, FHA can call the loan due if there are grounds for fraud. I have seen it first hand and its far more than .001%. Working in the mortgage industry for nearly 15 years, I have talked to many entities and individuals about this including people at HUD.

    So you are saying FHA, who does not even own the loan but only guarantees the loan, can show up and call a loan due without any regard to states foreclosure laws or for that matter the institutional investor that holds the loan ? Please post a case where this has actually happen

    0Reply
  • Bill Rich
    Lender · Marlton, NJ · Member since 2016 · 126 posts · 44 votes
    7y

    I meant the lender can call the loan due if FHA deems there was occupancy fraud refuses to insure the loan.

    0Reply
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