Can I use an FHA 203k loan for my first investment property???

Question

I am currently interested in purchasing a flip in Houston, Tx, but currently live in Shreveport, La. I understand that FHA loan requirements state that you must be an owner occupant and that the house must be your primary residence. Since I don't own any properties right now, could I consider this my primary residence even though I am living in Shreveport, Louisiana?

I have an experienced rehabber in Houston who will be handling most of the work.

Josh Tollenaer · Answer

I also have been through a 203k. Aside from it being illegal if you are truly not going to reside there, there is another aspect of this that could get you into trouble. When I was going through mine, the rehab took 2.5 months. My insurance company did a drive by to see the property and almost dropped the house because it was under rehab. In other words noone was living there. I explained to my agent what we were doing and still was almost dropped.They asked me to put a couch in the living room so it looked occupied. I refused and held my ground but just be aware there are other aspects of this to look at also. 203k loans are hard enough without trying to fly under the radar. I would say definitely dont try it!

Dave Toelkes · Answer

Phil,

Even if the property is a multi-unit, the 203k rules limit the rehab portion of the loan to the unit that is (or will be) the owner's primary residence.

Using the rehab money to fix one or more of the investment units is not permitted.

Paul Welden · Answer

Alexander - if a lender will give you the money for the loan, then you can purchase the property using an FHA loan. You could consider this property your primary residence but unless you have employment in the area where the property is located, then it could be difficult to convince the lender of your owner-occupancy status/intentions. The 203k does permit work to take up to 6 months to complete. So, if you intend to occupy the property as your primary residence after rehab, then it may work. However, if you change your mind and flip it for a profit or rent it out without any of your qualifications/status changing, then you may have just committed mortgage fraud.

Eric M. · Answer

Only if you don't mind being a felon.

I really think you know the right answer to this question.

Adrian Williams · Answer

Good Question !!! I have been down the whole 203k loan process when I was trying to process a loan for a buyer, I will tell you its a real headache there are so many stipulations and rules with these loans. I personally don't see where it would be a problem on HUD's website it says

"Can an investor use the 203(k) program?

No. In October, 1996, the Department placed a moratorium on investor participation in the 203(k) Rehabilitation Mortgage Program.

If you designate that as your primary residence and intend for that to be your primary residence I don't see a problem if your getting at trying to process a 203k loan for a rehab in Houston and staying in Shreveport and plan on saying your rehab is your primary residence and justify it by saying "I don't have any investment property's" I think your asking for trouble! :)

Phil M. · Answer

You'd be okay if the scenario was say, a multi-family property and you chose to occupy one of the units.

The HUD does state that the borrower has to have the 'intent' to live in the property, and I'm sure you could state it as your primary residence without actually living there, but it simply comes down to the fact that the property won't truly be owner-occupied and you didn't actually have an intent on living there. This grey area I would say is teetering on the edge of mortgage fraud.

Paul Welden · Answer

There is a lot of "chatter" about the investor version of the 203k making a comeback later this year.

Alexander Darnley · Answer

Interesting. Thanks for the advice everybody.

It looks like I'll steer clear of an FHA loan for the time being. I was really digging financing the rehab portion....

Are there any other viable alternatives for financing rehab costs?

Steve Babiak · Answer

Insurance for the property being vacant is what you needed - these policies are more expensive.

Alexander Darnley · Answer

No, I don't. If the property is designated as your primary residence then I don't see why an FHA loan wouldn't work.

I understand that the FHA does not lend to investors... but as this would be my primary residence, it doesn't have to be considered as such. Lots of people have  primary residences in the US but work overseas.

I am renting in La right now because I have a job assignment there, but I plan on being back to Houston within 6 months - 1 year.

That being said, must you physically OCCUPY a primary residence for the FHA loan to be approved.

Can I use an FHA 203k loan for my first investment property???

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