- Matthew Slowik acquired his first investment property with an FHA loan in 2008.
- Since then, Slowik has acquired 10 properties and earned a monthly income of $21,000.
- He said Please note that there are some caveats to FHA loans. Possession fraud is very real.
This narrated essay is written by a real estate investor and revival home buyers, based in western Massachusetts. The following has been edited for length and clarity.
One fall day in 2000, I got home from high school and my parents said they had just paid off their mortgage and were going to dinner to celebrate. That’s when I realized I wanted to do what they did.
Real estate investing was deeply ingrained in me from an early age. I grew up in a duplex that my parents bought for him in 1978. My parents did everything right. My parents had always been long-term tenants and had a good owner-tenant relationship.
Fast forward to 2007. I was fresh out of college, saddled with student loan debt, and working a low-paying, entry-level job. My sole focus was to find a duplex to begin my real estate investment journey. Currently, I am a safety compliance manager for a waste disposal company in Hartford, CT, and a real estate investor, owning 10 properties and earning approximately $21,000 per month.
I started by making use of. Federal Housing Administration (FHA) Loans. One of the things I appreciated most about FHA loans was that they were designed to make homeownership more accessible to people like me. I didn’t have a great credit history and had limited funds for a down payment, so an FHA loan was a perfect fit. Here are our best tips to get started.
1. Check that it is “available for rent”
The first step when aiming for acquire your first property It’s about determining whether you and the property you’re considering are loanable. At the time, I didn’t know what being loanable meant, but I soon learned that a good credit score and favorable debt-to-income ratio were important.
When choosing a lender for my first FHA property in 2008, I discussed my intentions with: multiple mortgage brokers I ended up with a real estate agent who was recommended to me and who I felt understood my situation. And more importantly, educated me through the process of being a real estate agent. First time home buyer. I felt comfortable, informed without being rushed, and not treated as just a number in the broker’s book of business.
To determine how much I could borrow and determine loan availability, I provided the broker with the necessary documentation, including my credit score, pay stubs, tax returns, and W-2 income from work.
The whole process can be exhausting. You’ll likely need to submit and then resubmit updated bank statements, pay stubs, and various other documents.
Once I submitted the documents, the broker was able to source the best option for me at that time. subprime loan financial crisis.My broker ended up with FHA. FHA 203(k) loan With Wells Fargo. While an FHA loan is a government-backed home loan, an FHA 203(k) loan is a type of his FHA loan specifically for home renovations and repairs.
FHA 203(k) allows borrowers to roll the cost of home improvements into their mortgage by borrowing up to 110% of the home’s post-improvement value.
I had just graduated from college, had a mountain of college debt, no credit cards or car payments, had minimal savings, and had been on W-2 income for less than a year. So they were ideal candidates for FHA loans with existing guidelines. at that time.
2. Give yourself clear criteria for buying a home.
When I first evaluated an owner-occupied property, I focused on several key factors that remain relevant today. The first was the proposed location. I looked for areas with good schools, good transportation, low crime rates, and potential for rent.
Next, consider the condition of the property. Properties that are structurally sound but need cosmetic updates can cost more. However, broken-down properties that require extensive repairs may be more affordable, but you’ll need a budget to make sure they’re safe and comfortable to rent.
Finally, we looked at specific property types such as duplexes, triplexes, and quadplexes. With a traditional FHA loan, you are limited to 2 to 4 units. It didn’t take long for us to locate our first property. It was his very small two-family home, each with one bedroom and bathroom, in a middle-class area, listed for $115,000.
The house dates back to 1970, but I knew I could update everything with my own time and effort, so I decided to take advantage of the FHA 203(k) option and avoid taking on even more debt. . I bought a house with a tenant living in one unit and me living in the other.I also wanted the tenant to pay most of the mortgage.
3. Consider refinancing your loan to your next property.
I own a first-time owner-occupied rental property because the tenant was able to pay close to my full mortgage ($1,000 of $1,150) and the home value was higher than the purchase price. I became a person. Since purchasing my first owner-occupied investment property in 2008, I have used Zillow to source qualified tenants and local landlord association support.
Six years later, when the first property was fully updated and the rent increased to fair market rent ($1,200), I refinanced the loan to a conventional loan. This allowed us to identify another property purchased under FHA guidelines, a three-bedroom single-family home purchased under conventional mortgage guidelines. Fannie Mae Homestyle Renovation Loan.
HomeStyle Renovation Loans are available for 1- to 4-unit primary homes, 1-unit second homes, or 1-unit investment properties. difference This type of loan requires a down payment of 5% of the total loan amount and often comes with a higher interest rate (it was 5.75% at the time of my purchase).
Since 2015, eligible for FHA financing for real estate acquisitions, my wife and I have purchased our dream home, a 1771 farmhouse, and a two-family second home as a rental investment property on the beach. I bought it.
4. Be aware of some caveats regarding FHA financing
First, there are no restrictions on which borrowers can take out an FHA loan, but they cannot have two loans at the same time. He must also intend to live in the property being financed for at least one year.
Second, in order to continue purchasing income property with an FHA loan, the loan underwriter must establish a new primary residence more than 100 miles from the previous residence or relocate for employment-related reasons; You will need to satisfy that your family size will increase (to accommodate additional children or family members), you will have co-tenants who are not occupying (buying for an elderly parent and then your own) ), or when vacating jointly owned property.
When purchasing our forever home, we overcame this challenge by refinancing our duplex with a conventional mortgage and were able to take advantage of an FHA loan. Having a second home was a qualifying condition, so this wasn’t a huge obstacle to overcome.
Run through different scenarios before making the leap. Know the price you are willing to pay. What will happen to the down payment?interest rate; the rent that will be charged with reference to HUD Office of Policy Development and Research; and required homeowner’s insurance. Finally, consider how much money you have set aside for repairs and vacancies, what your cash flow will be, and what the costs associated with refinancing will be.
There’s another caveat here. Possession fraud is very real. Avoid this at all costs. In addition to putting you at risk of having your loan recalled by your lender, violating the terms of your FHA mortgage without your lender’s permission can have serious legal and financial consequences.
5. Take time to invest in yourself.
Read, research, and network with other investors, local bankers, hard money lenders, and more. Also, learn about home buying through unconventional and creative terms.
The interest rate is Now it’s more expensive Much better than it was in 2008 when I first started investing. Don’t let this be a deterrent. If you do your homework, know your numbers, and do it right, you can pass the increase on to the rent you receive.
Despite my success, there are some things I would have done differently.
Looking back, my biggest change was to maximize the number of units within FHA guidelines.
You could own or occupy a smaller two- or three-family property by increasing the number of units from two to four after meeting the one-year owner-occupancy requirement and refinancing the property with conventional financing. Probably. My loan limit would have been higher and I could have identified another property within FHA guidelines.
Also, while sweat equity is good in theory, it took us too long to update both units in our first property before refinancing. I should have taken out an FHA 203(k) loan and renovated sooner.
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