Chicagojen, Home Buyer in Chicago, IL

I'm looking into buying a building for $165,000 3 to 4 units, it is completely gutted. Would it be wise to go with a 203K loan for this?

Asked by Chicagojen, Chicago, IL Wed Mar 10, 2010

investment?

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3
Hi Chicagojen,
You are absolutely correct, as are my colleagues, in regards to financing this property. The ideal situation is to leverage your current cash and utilize a 203K rehab loan. This will include the purchase price of the property, as well as, any repairs that need to be completed for the property to be in move in condition. The nice part about the 203K program is that you can also include appliances, making the property more marketable for prospective tenants. If you have further questions, please feel free to contact me, we specialize in 203K Financing.

Cecelia Marlow
Your Home Loan Partners
Pan American Mortgage, LLC
773-782-6000 Direct
877-588-6956 Toll Free
0 votes Thank Flag Link Wed Mar 10, 2010
It would be if you plan to owner occupy the property. If not, you can't use the 203K program.

There are a couple programs out there for investment properties. They require great credit and at least 25% down.

If you're considering 203K, we are hosting a free workshop on the 203K program this Saturday, March 13th, from 9AM-1PM. A Lender that specializes in 203K loans will go through a couple case studies and explain the process and cost structure. It is free, but space is limited, so contact me to RSVP if you plan to attend.

Best of Luck
Wayne Beals
Realtor
Keller Williams CCG
312-77BEALS
312-772-3257
wbeals@kw.com
0 votes Thank Flag Link Wed Mar 10, 2010
If the property is completely gutted, you really have only two options. Either purchase the property with cash or finance with a rehab loan. As long as you are occupying one of the units, the FHA 203k loan is an excellent option. If you are going to keep it as a 3 or 4 unit property, the FHA loan limits for Chicago are as follows: $634,450 for a 3-unit property and $788,450 for a four-unit property. So, as long as you can qualify for the mortgage payments, you can get upwards of $500,000 for the rehab using the full 203k as long as the after-improved value makes sense and you have the 3.5% required minimum down payment (that will be 3.5% of the sum of the purchase price and rehab funds).

3 and 4-unit properties, according to FHA rules, must be self-sustaining. This means that the net rental income must be equal to or greater than the projected monthly mortgage payment. The good news is that for the self-sufficiency test, net rental income is defined as the "appraiser's estimate" of fair market rent from ALL units (including the one you plan to occupy) minus the appropriate vacancy and maintenance cost factors. For Illinois, this is 85%, so as long as your project mortgage payment is less than 85% of the appraiser's estimate of total rental income, you pass the self-sufficiency test.

For qualifying purposes, projected rents for the rental units only are considered part of your gross income (again after factoring in the vacancy and maintenance cost factors.) You must also have 3 months of verified PITI reserves.

Please call me for more information and to get pre-approved. At Ardain we have roughly 15 years of experience with the FHA 203k loan. You can also get more information by going to our CEO's blog at http://www.richardhartian.com

My information is below.

Bradley Eggers
Senior Loan Originator
Ardain Mortgage
847-963-1000 (office)
847-744-0168 (cell)
bradley.eggers@ardain.com
0 votes Thank Flag Link Wed Mar 10, 2010
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