Profile picture for gilsmokey980

Do I qualify for an FHA construction loan?

I am a 30 year old, who is living in an apartment in Pittsburgh.  I still own a home in VA with a VA mortgage, I currently have the home rented out and have hired a property manager to take care of the process.  Rent checks are direct deposited as planned.

I am looking to purchase a 2-3 unit home in Pittsburgh, live in one unit and rent out the other 3.  Cost would be about $300k to buy and then spend another $60k on renovations.  Current base salary is $110k but I will make $10-50k on top of that in bonuses etc.  Latest FICO is 641.  83% of available revolving debt available,  2 Credit inquiries will fall off on the next credit report.  Monthly debt payment is $2050.
  • May 01 2011 - North Shore
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Answers (9)

Profile picture for wetdawgs
What percent equity do you have in your VA purchased property?

What percent do you plan to put down on the current property?
  • May 01 2011
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Profile picture for BlairCohen

You should contact a good FHA mortgage lender and have the lender do a pre-approval (usually there is no cost).  The lender I suggest you call is Jim Franco, owner of Welcome Home Finance 724-772-3333 extension 2114.  He will be able to give you all the details you need and guidance as to the best way to handle the financing. 

  • May 01 2011
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If you call a Mortgage Lender they would be happy to answer that for you.  If you need a phone # let me know. 

  • May 02 2011
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It all depends on your debt-to-income ratio, assets and over all credit. The equity in your Virginia home might be key to your approval.

Hope this helps. If you need more info, please drop me a line.

Jeff Thomas
  • May 03 2011
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Profile picture for user747397
Check out HUD's 203K Rehab program on their website
  • May 14 2012
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The loan you referred to is actually called the "FHA 203k rehabilitation loan".

As for the existing house, if you have tax returns to show you're receiving rental income on that property or you have a fully executed lease with a proper paper trail, it'll be no problem to offset that mortgage with the rents you're receiving to help you qualify for the new loan.  Your score is sufficient as well to do a full 203k but not a HomeStyle loan, at this time.

You can use the FHA 203(k) or the Fannie Mae HomeStyle Renovation loan to complete a large project like this. There are pros and cons of going with one over the other but both are essentially the same loan except one is a FHA loan and the other is a conventional loan. Your max loan amount for the 203k in Allegheny county is 327,500/419,250/506,800/629,800 for 1-4 units respectively and for the HomeStyle version, the max loan amount is $417,000/533,850/645,300/801,950 respectively.

  • May 21 2012
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(part 2)

A rehab loan (203k streamline / 203k full / Fannie Mae HomeStyle) can be used on a purchase to rehabilitate your home as desired (needed and/or desired repairs, even if the house is already in habitable shape) or or a refinance to update your home as you see fit. The HomeStyle as mentioned earlier can also be used on second homes and investment properties. Both programs can lend on one to four flat properties. FHA's 203k is pretty strict on eligible condo rehabs whereas the HomeStyle option is superior for units in the city that need rehabbing (or any condo for that matter). For anyone unfamiliar with the program, please read this sentence carefully, REPAIR WORK DOESN'T NEED TO BE DONE BEFORE CLOSING, I say this in caps because there are so many consumers out there who assume all work must be done before closing and I wanted to address that rumor right away. All work is done AFTER closing by your contractor. Having said that, here's where anyone with knowledge on the topic will offer a retort saying FHA allows for borrowers to do their own work... The reality is that even though FHA allows it, there isn't a lender in the country that'll allow you to do your own rehab. The foreclosure rate on "self helf" transactions is a staggering percentage and any lender who's offering this program knows this as well. While it's true that on an exception basis, underwriters have been known to let a borrower paint or do some very minor things, it's the exception and not the rule. If you're looking to do all of your repair work yourself, financed rehabs like what we're talking about aren't for you.  To be fair, some local bank that uses their own money may do something like this but again, that's the exception, not the rule.
  • May 21 2012
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(part 3)

You could use a 203k to gut your house and re-build it (a portion of the foundation must stay intact) though you may want to consider other homes if you're doing that major of a rehab unless you really know what you're doing.

Whether you're doing a streamline 203k, full 203k or HomeStyle, the process is essentially the same, talk to a contractor (or multiple) to get an idea of what the cost will be and if you can afford it (you'll want to speak with a loan officer to make sure you can even get a large enough loan to cover your existing balance/purchase price + desired repairs). In cases where there is structural work (replacing a roof is NOT considered structural) which includes moving/modifying a load bearing wall or repairing the foundation would most certainly be a structural change and would require the guidance of an outside consultant tasked with overseeing the project and ensuring it's completed as expected by the investor (Fannie Mae or Ginnie Mae) as they have no other way to determine if the work was done properly or at all post-close, hence why the (HUD) consultant is so important to them and why they're required on larger jobs or complex/structural rehabs. This consultant will also ensure the contractor's bid isn't unreasonable and can if he chooses, use lower cost numbers for the job than the contractor used and the contrator MUST lower his prices to match the consultant's estimate to continue working in the program. You could look at your consultant as a sort of fairy god mother, they'll make sure you're not getting overcharged and the work they're telling you they'll do is feasible for what you want done to your house.

  • May 21 2012
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(part 4, last portion)

I've seen blogs/posts here and elsewhere that say these are more for cosmetic work, that's what lenders who can only do the streamline 203k tell you so they don't have to admit they can't close your client's loan that want larger rehabs than the streamline will allow or structural changes. When I worked at a lender (name withheld) in the past as a specialist, I heard co-workers around me who could only do streamline 203k's use this speel all the time, it was almost comical to hear, please don't be fooled by the salesmanship, you've done your research if you're reading this, you're a step ahead of most others. Your loan officer should be intimately familiar with the program and be able to offer you the full gambit of renovation options. The most knowledgeable Renovation Specialists work for lenders who cater to these products.

There's much, MUCH more to these loans but that's enough for now.  If you'd like additional information, feel free to add more comments here for responses or email me directly.

If hope you found this "article" helpful, please use the "thumbs up" option, have a great day!

P.S.  Sorry for the 4-parter, they limit your post sizes greatly here.  :(

  • May 21 2012
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