Primary - Ugly w/ Rehab Loan, Refinance - Fannie Mae Homestyle

[Natalie Schanne]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $247,000
Cash invested: $75,000

Primary Home Foreclosure Success. Purchased Primary Home (5 Bed, 2.5 Bath, 2 Car Garage, 2800SF) as a REO/Foreclosure from Fannie Mae Homepath for $247k. Was listed for 255k, offered 257k with concession and got 10k off after inspections. Used Homestyle Rehab Loan (5% down, 5% interest with 70k) and got 3% First Time Homebuyer Credit (spouse) plus 3% agent commission. After renovation was complete (New HVAC, New Flooring throughout-hardwood and tile, New Paint, New Kitchen Cabinets w/ Granite and Stainless, New Appliances). Completed a refinance of the balance owed ~300k in March 2020 and moved from a 5% to 3.125% 30 year fixed loan and appraised for 400k, so we dropped our payment from $2800/mo to $2200/mo after reducing interest owed and dropping PMI. AirBNB the guest bedroom to traveling nurses / interns for $800-900/mo which makes the net of owning the house less than the $1500/mo in rent we paid for a 2 Bedroom 2 Bathroom condo.

What made you interested in investing in this type of deal?

We were looking to move from our 2 bedroom 2 bathroom condo and into a larger home.

How did you find this deal and how did you negotiate it?

I saw it on MLS when we were driving around looking at other homes across the river in Pennsylvania.

How did you finance this deal?

We used a Fannie Mae Homestyle Rehab loan. This loan wrapped up our rehab costs into the principal of the loan, so we had about $15,000 down plus some closing costs on a ~$317,000 conventional loan (247K+70k rehab)

How did you add value to the deal?

We created and executed a detailed scope of work that included renovating the kitchen, replacing the HVAC, new paint throughout, and new flooring (hardwood and tile) throughout. We demo'ed the carpet, vinyl, popcorn ceilings and old cabinets.

What was the outcome?

After refinance our payments dropped from 2800-2200/mo on the same loan balance as we moved from a 5% loan with PMI to a 3.125% loan without PMI. Closing costs were about $4,000, so the refinance paid for itself in less than 1 year.

Lessons learned? Challenges?

The Rehab Loan products are difficult. Our 8 week project took about 9 months to finish because the lender had an incompetent employee on the side disbursing our checks. It went from the bank being my helper (auditing the contractor) to working against the bank to get more money distributed faster. I didn't want the payments ahead of the work. My contractor wouldn't work between draws so there were weeks when nobody was working on our home or only one day a week.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

We dual tracked two lenders - Caliber Home Loans which had our original loan and Investors Bank that offered a good quote. Caliber ended up failing to honor it's "price match guarantee" so we closed with Investors.