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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: workwheniwantto on July 08, 2013, 11:54:08 AM

Title: Traditional Financing a Flip?
Post by: workwheniwantto on July 08, 2013, 11:54:08 AM
Has anyone used conventional ("I plan to live here") mortgage financing on a house they intend to flip in a few months?  I know it is usually against the rules to rent it out (usually within the first year - a Fannie/Freddie rule?) though is it fine to fix and sell it?

I can qualify for the mortgage and put 20-25% down.  I just would much rather be paying 3-5% than 10-14%, especially if it runs longer than I expect. 
Title: Re: Traditional Financing a Flip?
Post by: arebelspy on July 08, 2013, 12:22:51 PM
I have done it, yes (about a month ago, actually).  I could have paid cash, but wanted to leave it available for other opportunities.

Just under a month close-to-close.  We closed the purchase May 20, rehabbed, and sold June 19.  The first payment on the loan wasn't even due until July 1, so we never made a single mortgage payment.

Though the paying 3-5% versus hard money won't make that much of a difference, if you flip it fast enough.  You might save on the loan cost though, depending on the points you have to pay with the HML.

Regarding your "I play to live here" question - no, don't do that, that's mortgage fraud.  Finance it conventional, but as an investment loan, not owner occupied.  You'll have to put down 20-25% and the interest rate will be about 1% higher, but it's still a good deal.
Title: Re: Traditional Financing a Flip?
Post by: workwheniwantto on July 09, 2013, 08:13:49 AM
Finance ... as an investment loan

Do you find it harder to get qualified for that?  I have anecdotal experience that banks are more likely to support financing money that is to be enjoyed (wasted/used) than invested...
Title: Re: Traditional Financing a Flip?
Post by: arebelspy on July 09, 2013, 09:17:14 AM
Finance ... as an investment loan

Do you find it harder to get qualified for that?  I have anecdotal experience that banks are more likely to support financing money that is to be enjoyed (wasted/used) than invested...

No.  The requirements are basically the same (DTI, credit score, etc.), they just typically want to see 3-months PITI on all your properties as reserves when you have 0-4 mortgages, and 6-months when you have more than 4.  You'd better have more than that anyways if you are planning to rehab the place.

Either way I wouldn't commit mortgage fraud, even if it was slightly harder to get an investment loan.

Bottom line, financing a flip via traditional (conventional) financing could be a good idea if you don't have the money to buy then whole place in cash and rehab it.  Just don't get in over your head and then have mortgage payments you can't afford.