203K Loans Impossible (!) Says the Lender
Anyone had luck with 203k loans in SF? The last lender I’ve tried to get a pre-approval had a, imo, patronizing response saying,”Although lots of people talk on social media about buying a three or four unit property with only 3.5% down in practice it almost never works.”
All lenders who I’ve tried to give a pre-approval for has tried to sway me to switch to a 5% conventional instead. For my own personal goal reasons, I am going to still with searching for a lender who will be open to it.
Keep searching for lenders because you're speaking to the wrong ones. They one, aren't familiar with completing 203k loans or two..simply don't want to be bothered with them because they are more paperwork.
SF as in San Francisco?
Nothing 3 or 4 unit will pass the FHA self-sufficiency test, unless you are going to get the property for at least 30% off of fair market value. And, yes, there are years of data points to validate that just within my office, tens of thousands of dollars of wasted appraisal and inspection fees for deals (mostly not mine, thankfully) that had 0.00% of going anywhere but the "Loan Application Declined" bin.
At some point you may need to consider the following:
- The website that's monetized based on clicks and advertising and page impressions says this is a super easy thing and everyone should do it. Cool, that's nifty.
- The people that are monetized on actually closing deals are all saying this thing is highly implausible.
Maybe no one is an idiot, maybe they are simply being responsive to incentives. No click-bait website cares if you do or don't actually close, they care that you are clicking and generating advertising revenue. To wit, people might find this thread and exchange for years to come (I am cognizant of that future audience as I write this). The people who actually have an incentive to ensure you make it to the closing table are all telling you 5% down conventional, maybe there's a reason for it. That actually is your solution, if you are open to a solution.
A lot of the podcast episodes from the early 2010s were based on that market at the time, biased both temporally in favor of the early 2010s, and geographically in favor of Colorado. Yes, you could easily buy a fourplex in Colorado in 2012 with 3.5% down using an FHA loan. And, at that time and place, it would arguably be silly NOT to do so. 100%.
This post was biased towards San Francisco, and California more general to include Los Angeles and San Diego, today in 2024. The FHA rules/regs (in particular the FHA self-sufficiency test) are applied the same across all markets, and I know for a fact that in rural communities across the country, and big cities that are not particularly desirable places to live, it's not a deal-breaker, I am not commenting on those areas.
HUD has 2 online databases of lenders showing which ones have the most experience with 203k's.
But, the self-sufficiency test for FHA loans can be really difficult in SF, meaning that the market rent from units you will not occupy must be sufficient to pay for the mortgage payment.
Maybe consider a conventional reno loan like the Homestyle or CHOICERenovation.