Closed on my 203k loan with little cash as a NEWBIE INVESTOR!!!

[Justin Frye]

Extremely long process that I am very proud of FINALLY closing. This was my very first purchase and I did it using an FHA approved loan with little to no cash outta pocket. I plan on writing a very detailed blog on my 1st experience using a 203 k loan as it was quite comprehensive, especially as a newbie investor, but for now I'm just extremely excited and feel like screaming at the top of my lungs that the process is finally over. I closed on my latest acquisition 03-31-2017 after about 3- 4 months of going back and fourth with the seller over pricing and much more. The property is a 2 unit - each unit, 3BD, 1 BA fully functional basement in a historical part of Columbus, OH. The contract was initially accepted 11-04-16, so it has been a very, very long and enduring process but one that I wouldn't change for anything. More details to come!

[Justin Frye]

So here it goes..... I won't detail everything as I plan to write a blog eventually as I'm going through the rehab. I saw the property on the market initially on the MLS from my realtor on 07-14-16 and noticed a great opportunity, so I ran the numbers on the BP calculator and noticed that at the right price this could be a GRAND SLAM! The house was originally listed at $152,000 and had sat on the market for about 6 months so I knew I'd have some room for finagling as the original seller was clearly asking too much. I only had about $5,000 saved up for my initial down payment so I knew I had to make everything work around those numbers. In the current condition of the house the house was only worth about $141,000 so I made my initial offer for $127,000 and went back and fourth with the seller for months and finally agreed on a price of $136,000. The house needed a value add situation as one side was completely remodeled and updated and the other side looked like the inside of a house off a scary movie, "very scary". I had finally gone into contract on 11-04-16 and qualified for FHA assistance being as it was my very first purchase, from that point forward I knew in the current condition of the property that my only full proof option was to get a 203k loan and completely rehab the other side of the property. This was a house hack opportunity that I took to the full advantage!

So I began my journey as a newbie investor first time homebuyer and decided to go with the 203k loan. Not knowing much I consulted with my loan officer about the initial process and what was needed on my part to begin. Being how the lending company I went through was very small my lender had sent me over to their 203k loan depot specialist, which come to find out their wasn't one because the company didn't deal with many 203k type loans, So this was not only my first time doing this this was also my lenders first time with this type of loan. So after going through the initial budgeted down payment, total loan payment, employment verification credit history etc, we then started focusing on the tasks at hand which were the home improvement requirements and exactly was I wanted done. I knew the house needed a completely new kitchen and bathroom as they were in horrible shape, everything else was cosmetic so we focused on the main focal points which were the KITCHEN and the BATHROOOM. Once I figured out exactly what I wanted to do with the property (construction wise) I then almost made the mistake of scheduling a market analysis/Appraisal before I even gotten a bid on the scope of work, BIG NONO always consult with a contractor prior before planning an appraisal/market analysis it'll save you a headache in the long run. So I then consulted with a contractor got a bid and had my number to go off for my total loan amount, lets remember that the we had agreed on a selling price of $136,000 and my bid for the work amounted to $27,124 so the total amount on the loan at this point would be $163,124. and 3.5% of that would be $5,709.34. I knew I would have a problem at that point because none of that $5,709.34 would constitute to the closing costs. So my next plan of action was doing some research and figuring out how I can make everything work I later realized that I had never asked for seller concessions in the original contract nor closing costs, so quickly I started scrambling to figure something out as my contractor was making his initial bid. I then came to the realization of adding an addendum and having the seller pay for concessions and closing costs, After hoping and praying for about 2 days the seller finally agreed and signed the addendum back to me with just about everything I needed. Pretty lucky right? Well its still not over after getting the appraisal, after jumping through tons of hoops for paperwork needed from my lender I was then finally able to get the ball rolling. HUD disclaimer, because the scope of work needing to be done was less than $35,000 I didn't require a HUD consultant because its considered a streamlined 203k type loan, which can get pretty costly. After getting my initial bid done from the contractor I then had to play the waiting game, after the lender got the bid it had to be resubmitted due to the fact the contractor didn't line itemize his entire bid. By this time because everyone knows how contractors work which is slow I had missed my initial closing date due to the back and fourth that I was dealing with from the contractor and my lender, this one was free. It took some time for the contractor to get everything itemized and get everything back in a timely manner, at this point I AGAIN passed my deadline to close so I had to request another extension which cost me $375 for a 2 week extension. My lender told me we cannot keep extending the closing date it needs to be done ASAP! You guessed it I had to request yet another extension due to the fact that my loan was still going through underwriting. Long story short I ended up closing on this house for as little as $5,000 outta pocket, with no experience and having the house appraised over $200,000 with a little over $45,000 in equity. It was One thing after another it seemed like but I was finally able to get all the pieces together and move on with the process. I'm sure I missed some steps through this so if anybody has any questions please feel free to ask away. If there's any advice I could to investors looking to use this option in the future it would be to ask as many questions as possible once identifying that your going to go this route. From the jump find out exactly what the lender needs and what the requirements are for them, every lender is different. Second most important thing is MAKESURE your contractor is willing to go back and fourth with your lender or bank, COMMUNICATION is key in this process and could be the difference that saves you hundreds or thousands of dollars. I will keep everybody posted with a blog on the whole construction process and cant wait to share the success I have. One more thing I might add is don't think that just because this loan is comprehensive that you must pay for a HUD consultant specialist, while its never a bad idea you can save yourself some extra time and money by just talking with someone who knows what their talking about who is willing to help out. Thank you to all who take the time in reading this and please ask questions if need be. Happy Investing to all!