All Forum Posts by: Matthew Porcaro

The FHA rules are owner occupancy, not first time home buyer. You can use an FHA loan, so long as you move into the property and make it your primary residence, AND you don't have any other active FHA loans (unless in special cases when you do a relocation due to work or a life altering event).

On the topic of converting a single family to a two-family, this is something that is possible with the 203k, but in general it's very hard from a permitting and variance standpoint to get single family conversions approved. 

Single family areas usually are zoned in such a way that does not allow commercial (or multifamily) in the areas. 

If you want to leverage the strategy of turning your owner occupied home into more of an investment/asset by having multiple units and tenants paying your mortgage, I'd focus directly on distressed 2-4 unit properties. 

In general there are way fewer of them on the market, but with patience you'll be able to find something you can build equity into, as well as get cash flowing or paying for itself!

For single family, I'd say that the HomeStyle is probably your best bet. It requires a bit less paperwork, and you don't need to pay PMI upfront like the 203k does (1.5% of loan amount at closing).

A loan officer that specializes in renovation loans should direct you to which renovation loan product works best for your specific situation and financial profile. 

I think your next step should be finding experienced renovation lenders in your market, and starting the conversation with them to get a pre-approval for the program(s) that work best for your goals. 

Hi Israa - 

I can appreciate you taking time off to travel! As a travel lover myself, I'm jealous you got to get some time away and explore, especially right before the pandemic started! 

To answer your questions:

1. Most banks are really going to need to see consistent income for the last two years, FHA or not. Some banks have more leniency than others, but generally speaking they need to see stable income in order to give you a mortgage.

Now, there are things you can do to navigate this. You can entertain bringing on a cosigner or a partner to buy and live in the property with, but these are things that you should discuss with loan officers and see what your next best move is. If you just have to wait, it might not be the end of the world, all though I know what it's like to want to start right away!

2. The underwriters for the loans are going to be looking at your Debt-to-income ratio, that will be affected by that first conventional loan. Unless, you're buying that first conventional property using a conventional rental loan, and are renting that property out for cash flow, and can prove it. But even if you were renting it out and it was paying itself off, banks still want to see a year of rent roll to prove if it's paying itself off or not. 

3. The pandemic has brought many challenges in real estate, but overall, deals are still being done. I know of many lenders, contractors, and consultants in the 203k world and I know for a fact that deals are still happening in every market regardless! As foreclosures start to trickle back into the market later this year, you're going to see many more opportunities to buy distressed deals with 203k's directly from banks. 

If I could make a suggestion, I'd say why not just focus on one deal at a time? If there isn't a huge rush, I'd methodically pick one at a time and keep your focus centered on each deal, to make sure you maximize each one!

I know you mentioned the 203k, maybe focus on the 203k first, find a deal that needs a lot of work and you can build some forced equity into on the renovation portion, then when you're complete with that, use a HELOC or do a cash-out refinance if you're able to with the new equity, and use that money to buy your next deal with a conventional loan, or combined with hard money/private money. (That way you don't need to deal too much with the banks requirements)

Hope this is helpful, either way, good luck!

@Brandon Yokoya

No, the HUD consultant is essentially the inspector on the project, that:

1) helps you identify the work that needs to be done to get the house code/FHA compliant, as well as helps you come up with a scope of work for what you would like to do to the property and how it compares to your available budget based on your approval/comps/etc.

2) inspects the contractors progress throughout the project and report back to the bank what’s been completed, by line item, to release draw payments to the contractor during the project.

Now, a realtor wasn’t included in my list because compared to the other key players, the realtors involvement in the 203k process is minimal.

The reality is the large majority of realtors don’t understand the 203k loan, or are uninformed and jaded by heresay about the loan that prevents them from working in your best interest.

Especially in today’s market, you’ll see a lot of realtors that claim the 203k isn’t a realistic loan to use in competitive markets.

Even during covid, even in this competitive market, I still see tons of people getting these done. Don’t let it scare you.

But if you’re looking to find a distressed deal, and put in the leg work, this loan can be a powerful tool that can help you leverage some sweat equity into a deal with a very low out of pocket down payment.

Your relationship with your realtor as far as 203k’s is concerned is - you tell them you’re looking for properties that need ample work to build equity.

You find properties, tell them your offers, they place your offer.

The second they start consulting about your 203k or what they think you should do is when you should be careful on taking their advice.

To chime in to the above, your team is the most important part of a successful 203k. I bought a distressed duplex with a 203k, and looking to do another one this year on my forever home. 

3 key players in the process are your lender, your HUD consultant, and your contractor.

Don't let anyone tell you that these loans are too hard, or contractors/lenders/sellers won't take them. They're the wrong players you don't want to work with. 

In every market there are professionals that specialize, or have deep experience in renovation loans like the 203k. You just need to focus on the lender, and build from there!

@Kenyon Williams

I use a combination of equity from my rentals in the form of HELOC's with hard money and private money.

If there’s a good amount of equity, you can refinance into many different options.

You can also refinance with a 203k, if you’d like to do renovations to the house to increase the value. You’d have to have some significant repairs though I would say to end up getting more equity than what you put in with hard costs of the refinance + the renovation costs.

@Chelsea Ross

Just because your broker doesn’t offer 203k loans or homestyle loans doesn’t mean you shouldn’t use them! Find another broker!

There are brokers out there that specialize in these types of renovation loans, and they will undoubtedly be the best loans for your strategy of househacking/BRRRR method.

When I did my 203k, I did a househack, and then used the equity gained as the down payment on my next flip 6 months later (similar to the BRRRR method)

Definitely don’t let that lender stop you from hitting your goals.

This is how I got started! The 203k gave me a huge equity boost on my first live-in flip, that took about 8 months from closing to finishing the project. I now use a HELOC to tap into that equity I gained on the deal, to help finance my flipping business. Picked up the property for $270k, put $80k into it, and it reappraised for $480k when it was done. ~$130k equity.

The key is you really need to aim for deeply distressed deals. Your numbers need to be similar to that of a fix and flipper's numbers. That way you can ensure there's enough "meat on the bone" to tap into via a HELOC or cash-out refinance.

I'd say, if you're going the single family route, the HomeStyle loan will be a bit better suited for you. It has a bit less paperwork and logistics than the 203k does, and is actually considered a "conventional" loan vs. the 203k's FHA denotation.

This market is light on foreclosures right now, but any "as-is" properties on the MLS are going to be your wheelhouse. You need to make a lot of offers, but I know first hand people are doing these deals even in this low-inventory market!

Aim to have you all-in cost (purchase + renovation) to be 75% or under ARV. That way you should have no problem doing a cash out refi or heloc!

Good luck!

Matt

You want to locate lenders in your market that specialize in renovation loans like the 203k or HomeStyle loan. The 203k Loan is an FHA loan, and the HomeStyle loan is a Fannie Mae product.

Either one can suit you, or there are a few others. You could also take out a home equity line of credit for the work, or do a cash out refinance. 

Because you own the home outright, you have many options, which is great! 

@Manda Gouvion

4 years, which was way too long.

The thing I learned about real estate investing is you’ll never feel 100% ready.

There’s no amount of research that will make you feel like you’re totally confident in your decisions.

Study, but real estate investing isn’t a class room with a written exam.

It requires taking action, learning as you go, and learning from your mistakes and doing it better next time.

So just take the leap of faith!