I’m guessing someone has asked this before, so please forgive me Noob here.
Has anyone used 203k loans to purchase and rehab a property, occupy the property briefly and then refinance into an investor friendly loan so the property may be rented?
Long story short: I’d like to use 203k financing to rehab properties, I would plan to use them as my primary residence for a short amount of time (short as possible to satisfy 203k requirements) and then refinance and move out. I would then rent out the property.
Purchase for $50K
Get a 203k loan for $100K
Use the extra $50K to rehab the property
Refinance at $100K
I have never done this and I was hoping to get some feedback concerning potential obstacles in doing things this way. Any thoughts/suggestions? Am I a total moron here? :help
You will have to live in the property for a year to meet FHA 203K criteria. At the end of a year you can do a 203K streamline refi if it makes sense. Unfortunately, you will not likely find a lender that does 100% LTV financing as you wish. Most investor loans are at 70%-75% LTV.
If you don’t have alot of money to put down, the 203K program might be your only option. One thing to remember is that not every property will be eligible for the 203K program. You should be talking with an agent and a bank who does 203K’s and get pre-approved.
If the property actually appraises for $150K, that will help you greatly. You need to be really conservative with your estimates. You should under-estimate ARV and income, and over-estimate expenses, repairs, and vacancy allowance.
You will not be able to refinance the property for 12mos. No credible lender will touch it because the 203K is an FHA loan and has government restrictions.
I received my 203K Specialist Certification recently and they were very clear on this fact. Because this is financing by a government agency, if your caught refinancing prior to that year you may subject to fraud charges.
Please tread lightly on this subject. The NO INVESTOR moratorium has been in place since 1990 if that helps you understand how serious they are.
It’s better to just stay away from 203K loans as an investor.