Financing-FHA Approved. How do I use this with others' money?

Question

As I have been educating myself on REI, I wanted to know how much of a mortgage loan I could get approved for right now on my own. With one lender I was approved for $150k at 4.5%. I know it's peanuts for the CA market, but it gave me an idea of what I can get solely on my own. Of course, I want to invest and I need a bit more to get into a 4 plex or more. So I need others' money to do it. My question is, can I use the individual loan and get others to bring in their funds and have it all under my name or should we get the loan under an LLC? I'm not sure how my own loan approval would work with adding others' money to the mix. Thanks for clarifying this for me...

Nina Grayson · Answer

Thanks @ Aikane Belez. Yes, I know FHA is only for owner-occupied. I was looking at FHA as an option if I or another investor lived in the property - say a duplex. Yeah, FHA's are unlikely at $150k, and that price is most likely a tear-down or like I said, in the Valley (and Lancaster is so far away from LA proper, it would be a challenge to find renters). I had not thought of doing an off-market deal and using my comm. as part of my carry. I'll have to run some comps for projected comm. and performance on Income properties to see how the numbers look. Thanks!

Nina Grayson · Answer

David, This is a program through LA County that provides a $60k down payment grant. They limit the DTI. I have money for a down, and a great credit score. They just limit the amount if you are only putting down 1% earnest and using the grant. My intent is not to make a financial partner a guinea pig. I only will go into vehicles that have Market and Rent analysis that shows a strong ROI.It is my understanding that investing with low or no money down is achieved with partners who have the funds but do not have time to do the leg work of finding the deals. I was simply seeing if I could bring something to the table with an FHA. Apparently, using an FHA with partners is not possible. It is possible to by a property in LA County for $150k or less. However, you have to go East or North into the Valley. Although, there are not many duplexes or in-law properties in those areas that I've seen in that price range. I'll have to bring cash to the table and do an Limited Partnership commercial loan with partners.

Account Closed · Answer

Hi @Nina Grayson . FHA loans are only for owner-occupied properties, so you can't use that route for investing (unless it is your primary residence....which you can kinda flip, or even rent if there are enough units, but your lender should be able to help you with that info). A property in LA for $150K would be unlikely to qualify for an FHA anyway, you know the market here, even teardowns are starting with a 2 or even 3. At the very least, as an agent, you can bring to the table an off- market deal (or even a great on-market deal) and perhaps your investor/partner would allow your commission to be part of your carry with additional % based on the performance of the property. Anyway, hope this helps.

David Faulkner · Answer

What is driving that $150K cap? ... is it debt-to-income, your cash for down payment, or your credit score? I would figure out which and attack that to get that limit up. $150k is really, really low ... there has to be one or multiple reasons for it. A good mortgage broker (not a bank) can walk you through your options, assess what is holding you back, and advise what you can do to fix it.Call me old fashioned, but I don't think you are ready to invest until/unless you fix those underlying issues first. Do not form an LLC (that will cost you $800/yr CA state franchise tax among other expenses), do not try to bring in partners ... you should never make your financial partner a guinea pig for you to experiment for the first time investing, especially when you yourself are not very financially solvent yet.BTW ... it is possible to buy a property in LA county for that ... you will need to go East to the Antelope Valley ... Lancaster/Palmdale area.

Nina Grayson · Answer

Thanks Bob.I thought it was the LLC commercial mortgage, but was not sure. So (in very basic steps) I would have to:1. Bring in partners2. Form an LLC3. LLC puts down 25% (partner funds)4. LLC commercial loan approvalIf some of the partners do not have cash to contribute to the 25%, but lets say they do some of the leg work, is it a normal practice to obtain the down from Hard Money Lenders or is it best to have some partners put the 25% down?

Bob Okenwa · Answer

No, you cannot bring in outside loan/borrowed funds to get an FHA mortgage. Gift funds are allowed and there is paperwork for the gifter and yourself to sign indicating that there is no expectation yo repay those funds, otherwise it's fraud. But you can have a cosigner go on the loan to increase your purchasing power. Or you can buy directly with the LLC with a commercial mortgage and 25% down.