If you haven’t read part 1 of our real estate journey, stop reading and read part 1 where you'll learn how we bought our first building for the price of a used car. It was around the end of September when Scott at Bigger Pockets announced a 90 day challenge. The challenge was to find and buy a new property in 90 days. When I heard him announce the 90-day challenge I was itching to go for another building. I had recently just refinanced our two-flat to get out of the PMI using a major, big name bank. For the remainder of this post I will refer to that bank as The Bank. I had a friend at The Bank do this refinance for me and everything went well. So we started looking for a 3-flat to purchase. We found an amazing property that was on a double wide lot with two 2-car garages. The house was a 3 unit property. Walk out basement with 3 bedrooms and 1 bath. 1st floor with 2 bedrooms and 1 bath. The 2nd and 3rd floor was one giant unit with 5 bedrooms and 3 bathrooms. They were asking $450,000 for the house and we offered $458,000. They accepted but on the condition that we buy the house as is and that we cover any difference if the appraisal came under $458,000. They also requested $12,000 as earnest money. Since this was only our second deal, we got scared and offered them that we would only cover a difference up to $450,000. They ended up rejecting our offer and sold the house for $475,000 a week later. We really missed out!!
Letting fear guide your life is a sure recipe to always miss out!
After that, we found a two flat with a legal coach house in the backyard instead of a garage. We ended up offering slightly under asking price and got our $418,000 offer accepted. When it came time to choose a lender, I decided to go with The Bank because my refinance went so well and because they already had most of the papers required for the purchase. We were only 30 days into the challenge when this happened. Our deal went to underwriting and fell apart there!
Underwriting found that I had, unknowingly, signed an occupancy affidavit when I refinanced. The worst part is that even my friend forgot about that. We had no idea we even signed something like that. Since we were trying to buy this house using an FHA loan, the deal was dead. The only option was to come up with $84,000 to buy the house with the conventional 20% downpayment. We only had $20,000. I called a friend who is a private lender and he said he can try to salvage the deal so we tried to move this deal over to his bank before The Bank's underwriting could officially decline it.
Thankfully everything went well and the deal was officially transferred over to the private lender without an official decline notice from The Bank. We celebrated the night that happened and, the next morning, I got a call from my private lender saying the deal was just officially declined by The Bank! The result was put into the FHA database. When something is put into the FHA database, it can't be removed. Any deal we would try would result in the same decline from the database.
It seemed there was nothing we could do other than wait until May 2018 for our occupancy affidavit to expire and apply for a new FHA. The problem is that Jen was pregnant and due in March so the bank wouldn't approve our loan because she would be on maternity leave. Things would be even worse because she was going to stop working after this next child. I knew that this would be our last chance at buying a three-flat for quite a while, so we pushed hard to find another option.
That option turned out to be, refinancing our two-flat, again, as non-owner occupied and then buying this three-flat with an FHA loan. The dilemma was that we refinanced to get out of the PMI and rates had come up enough that we would be full circle again. To keep this post shortish I won't get into the details of how I justified doing this deal but everything else went well until 2 weeks before closing.
Two weeks before closing, I get a call from the lender that they have some changes that need to be made to the appraisal that The Bank made on the house, but The Bank didn't have access to it anymore. Due to lack of time, it was suggested we conduct another emergency appraisal. The appraisal went well, but a few days before closing, FHA ended up rejecting the changes to the appraisal and the deal died again!
Because the changes couldn't be approved, we weren't able to satisfy the self-sufficiency FHA requirement for a 3-unit property. The deal looked dead again! The only other option was buying ourselves a lower interest rate to satisfy the self-sufficiency clause. We needed to get to 3.5% from 3.75%. My lender said it would cost $10,000, but that he would cover $6,000. We ended up going this route.
We were finally set to close on the January 29th when the seller's attorney decided he's not coming to closing because he had New Year's plans. Our rate locks expired on January 29th! After all this trouble the deal was in jeopardy for such a funny reason. Thankfully, we were able to get the same rates without paying for a rate extension and we closed January 2nd!
So, technically we didn't pass the 90-day challenge, but boy was it an adventure! Hope you enjoyed! Have you ever heard of anyone having to jump through so many hoops for a property?
