Getting a 203k for brrrr

[Marcele Johnson]

Hi I was wondering if I have an fha loan already if I wanted to do a brrrr deal next year can I use a 203k loan or is hard money better or only option?

[Andrew Postell]

@Marcele Johnson there are two things to address here: A 2nd FHA loan and the BRRRR method.

1. 2nd FHA Loan - now, FHA does allow you to have 2 FHA loans at once but there needs to be a reason according their own guidelines.
   1. You need to have a job transfer outside of your normal commuting area - usually 100 miles away or further
   2. You need to have outgrown your current home.  Meaning, maybe your family grew in size and you need a bigger home.
   3. An other reason that is similar to those?  The guidelines do allow some leeway for another reason but it has to be similar to those in nature. 
   4. One other important element to consider here is that if you need the rental income from the property that you are leaving, then FHA will require that property to have 25% equity. It's a weird requirement but that's what they require.

1. The BRRRR method with FHA - one of the main points to the BRRRR method is the REFINANCE step. When we use the BRRRR method it's used to help us DECREASE our out of pocket expenses when buying an investment property. Meaning, to buy an investment property with a traditional Fannie/Freddie loan I need 15% or 20% or 25% down. Buying a $200,000 with 25% down is no small amount. If you have $100,000 saved...how many $200k properties can you buy? Two? But with the BRRRR I can then get the property at a SIGNIFICANTLY lower percentage out of my pocket. It helps solve the "cash need" that traditional purchasing has. And BRRRR means I can buy more properties. 

When I buy with an FHA loan I'm already at 3.5% down so the "cash need" is not as steep with buying a primary home. And it's extremely rare that I have enough equity built in to refinance. Now, saying all of this doesn't mean that buying and renovating with a 203k loan isn't a good idea - i think that it is - but the expectation to refinance and receive your out of pocket costs back...I just don't think it should be an expectation.

*WHEW*  I know that's a lot but hopefully this helps in some way. Thanks!