Z1: Case Studies
Steve and Scott want to buy a small, 4 unit investment property. They will each live in a unit and they will rent out the other two units. Steve is a Veteran. The home is located in a USDA approved area. They have saved 10% for a downpayment. Which loan program would your group recommend for Steve and Scott?
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Greg and Lisa have lots of money. They’ve always been savvy about knowing when to make a move on a good investment and they believe the housing market has bottomed and now is finally the time to buy. Unfortunately, they have not been terribly good at making their payments on time. Their credit reports show a long history of not paying their bills on time, lots of medical collections, a bankruptcy tied to a medical illness, and no real “reestablished credit” after the bankruptcy was discharged…but they have a lot of money in the bank. They can make a 20% downpayment on a home. What type of loan would best suit this couple?
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Comment by Teresa Gallaher on 4 December 2009:
For Steve and Scott I think I would recommend the VA loan. I don’t think the USDA would allow for an investment unit to qualify. I don’t do either one of these loans, so I am not completely knowledgable on their guidelines other than those outlined in the prior articles.
For Greg and Lisa I believe in this lending environment with a prior BK and continued history of not paying on time, even with 20% down they will probably need to look for a hard money or private money source. Hard money is probably going to want more than a 20% down payment.
Comment by Ken Ritter on 11 December 2009:
For Steve and Scott I would recommend a VA loan for them since USDA loans are for primary residences only.
Greg and Lisa will probably have to look for other loan options than the traditional loan because of their bk and history of not paying on time. Probably a private lender would be their only option at this time.
Comment by richard martin on 11 December 2009:
USDA Loans I understand are to assist people in rural areas in finance a home, I think Steve and Scott are do not qualify since they are looking at a commercial business. Note only Steve is a Veteran and Scott is not, could they swing a VA loan with Steve as the primary owner that would be their best bet if they can arrange it.
Comment by Jan Mundt (Henriksen) on 20 December 2009:
Steve and Scott are not eligible for either VA or USDA. USDA is for single family properties. VA would view this type of transaction as a “Joint Loan” thus prior approval would be required. I have never done a “Joint VA Loan” therefore, I’m not sure if lenders have a market. I would recommend an FHA loan as long as the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exeed 100%. 10% savings may be sufficient to satisfy HUD’s requirement.
Greg and Lisa are not ready for homeowership at this time. I would counsel them with regard to credit repair. After at least a year of clean credit with some re-establishment, I would recommend going FHA.
Comment by Launce Macomber on 21 December 2009:
For Steve and Scott, I would recommend first trying the USDA because it is in an approved area and they will both occupy a unit. The fact that are other living units available may work in their favor in the sense of providing extra income to service the debt. If that fails, they could try for VA approval. As for Greg and Lisa, I have to agree with the other respondents. Either wait until their credit history is repaired or see if there maybe private money for a short term loan while their credit improves.
Comment by Jerrod Goode on 29 December 2009:
I would have Steve and Scott try to do a VA loan first. Greg and Lisa need to focus on putting their credt profile back in order. This will save them money in the long run. I agree that they should try to show at least a year of clean credit.
Comment by Jason Brock on 30 December 2009:
Case Study:
First case: VA loan… he earned those benefits and should use them. Case two: rent for a few years and repair their credit first then secure a low rate with low fees.
Comment by James Haechler on 30 December 2009:
For Steve and Scott I would recommend VA or FHA. Both of the loans will have there issues. VA has a large funding fee but great for first time borrowers. Not sure how Scott will qualify without VA certificate. Never done this before. So FHA would probably work, but they will have a FHA funding fee and PMI without 20% down. USDA wouldn’t be an option. For Greg and Lisa hard money. They can wait a year and clean there credit report and make payments on time for that year. Then I would try FHA. Some lender would consider them with a clean credit report and no 30 day lates for a year.
Comment by Arash Fiuzi on 30 December 2009:
I would recommend a USDA, VA or FHA loan in that order because of the cost and complexity reasons. The FHA monthly MI is something the other loans just dont have.
I would counsel Greg and List to payoff their medical collections and provide paid in full letters. I would then try to see if we can build a non traditional credit report for them if their rent was paid on time. If not, I would counsel them to pay their rent on time so that there was on 1×30 in the prior 12 months, apply for several secured credit cards to establish credit and to dispute any erroneous information on their report. Once their credit and rental history was acceptable, I would help them obtain a loan.
Comment by Kelly Fiscus on 30 December 2009:
Greg and Lisa need to wait and clean up their credit.
As for Steve and Scott I am not sure about. I am not sure if VA would loan on a 4 unit property, I would have to researh it. USDA loan is the same I would have to research
Comment by Chris Yanke on 30 December 2009:
For Steve and Scott since they are not married and since this would be an owner occupied investment property I would reccomend and conventional product since I do not believe VA would allow for more than 2 units and USDA guidelines never address “multi-unit” properties.
Greg and Lisa I would have them re-establish a 12 month credit history. But in case of FHA loans, if the medical illness can be documented and they want to pay off some of the collections, they would have to have 24 months from the discharge date of a chapter 7 or 12 months from “SATISFACTION/DISCHARGE” date of chapter 13 before sending this to underwriting.
Comment by Kelly Fiscus on 30 December 2009:
For Steve and Scott they could try a conventional product since it is an OO invest property.
Greg and Lisa really need to re-establish and clean up their credit. A clean rental history and 12 months of on time credit payments would really help
Comment by Chris Yanke on 31 December 2009:
CORRECTION, To maximize their cash I WOULD REFER STEVE AND SCOTT TO FHA so that they could could get a more competitive rate and have owner occupied (50% or greater) terms.
I am just running on empty…lol!
Comment by Harold Burton on 31 December 2009:
Steve and Scott should use Steves VA eligibilty to buy the four unit. Instead of using the ten percent saved keep it for reserves for a rainy day or home inprovemnets. Depending on where they buy the rental income might even cover there mortgage payments.
If Greg and Lisa have lots of money I would have them wait twelve to twenty-four month’s while I help them re-establish there credit before they buy. Save there money and wait until they could qualify for a FHA or conventional loan which ever has the best interes rate.
Comment by Karen Tuff on 31 December 2009:
Steve and Scott should use VA option.
Greg and Lisa could use a private lender option. Use their cash to pay off any outstanding collections. Spend time re-building credit by getting 3 trade lines established and pay them off every month, then buy when FICO is up.
Comment by Kimberly Peterson on 31 December 2009:
For Steve and Scott they have to go with the VA option and for Greg and Lisa I would say they are absolutely not ready for a traditional lender and would have to go with hard money.
Comment by Daniel Mulvehill on 26 February 2010:
For Steve and Scott I would try the USDA loan within there location, and thereater a VA loan for Steve and Scott an FHA O?O loan.
For Greg and lisa I would suggest firs of all I offer them a credit review and credit clean up, I know professionally how to do this and let thme know it will take 3-6 months, but if they wanted to buy low for now, go over the higher rate of interest and let them know this will be there financial committment for 1 year minium to establish a good mortgage payment history and in the interm swork on the credit issues.
Comment by Elisa Wu on 28 February 2010:
I recommend Steve and Scott for VA loan since that’s only one they qualified; for Greg and Lisa, they should wait until they save enough downpay and ready to choose laon.
Comment by Bryce Zimmerman on 22 May 2010:
if VA only Steve could be on loan application and title at the time of closing. USDA not eligible to Veterans. So if they want to purchase the home jointly they’d need to do a conventional loan, but good luck getting MI on a 90% Non- Owner!!
Greg and Lisa- I don’t have an investor willing to lend unless they meet 620 min. fico score. If they don’t meet that they’d need to look at owner financing or hard money. Better off reestablishing credit.
Comment by Angie Williams on 27 May 2010:
I would explore all three options and guides. 1) USDA.. investment not allowed. 2)VA.. would need to check guides but dont’ believe you could go investment wiht multiple borrowers. 3) Conventional is what you would use back in the day.. but I don’t think MI would be available.
The second options is missing key pieces of information. you need a 620 minimum. Also, you must have re established credit after a BK. I would put them through our credit solutions center program.