Why “First-Time Home Buyer Loans” Aren’t What You Think

Ashley:
This is Real Estate Rookie, Episode 212. My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, information, and stories you need to hear to kickstart your investing journey.
I oftentimes like to kick off these episodes with a shout out to some folks that have left us some reviews on Apple or Spotify. Today’s review comes from username Ali Perky. “Ali says we needed this!” With an exclamation mark, “Love Bigger Pockets, but we needed this show, The Rookie Show, for those that are earlier in their investment career. Thank you guys so much for this.” So if you guys haven’t yet, please you leave us an honest rating review on whatever platform it is you’re listening to. The more reviews we get, the more folks we reach and that’s our goal here is to reach and help more people.
So Ashley Kehr, what’s going on? How you doing?

Ashley:
Well, I’m pretty sure I lost my AirPods in the lake last week, so

Tony:
I was wondering why you had the big headphones on.

Ashley:
Yeah. They’re like the only ones I could find in my house. So they must be one of my kid’s? I don’t know. It was either these ones or super tiny little blue ones for a toddler. But yeah, so I don’t don’t know. I got to use the Find My iPhone-

Tony:
My AirPods?

Ashley:
… Or My AirPods. Yeah. See what happened to them. But what’s new with you?

Tony:
Nothing much. Just got back from Las Vegas, not to party this time, no pool parties, but my son had a basketball tournament, so.

Ashley:
Oh, cool.

Tony:
It was the last tournament of the summer. So there was, I don’t know, hundreds of teams out there at the Las Vegas Convention Center. I actually bumped into someone from the Bigger Pockets community. I was walking out and wish I could remember his name, but anyways, just always so cool to meet folks that listen to the podcast in real life. So whoever that was, I appreciate you reaching out.

Ashley:
Did he have a son on a rival team?

Tony:
There were different age groups.

Ashley:
Oh.

Tony:
So he did have a son, but my son’s 14, his son was 13.

Ashley:
Oh.

Tony:
So they weren’t playing in the same division.

Ashley:
Okay. Well, I did pull a question for today’s Rookie Reply. This one is from Carolyn Gotlida. And the question is, “Hi, Ashley. I’m so thankful for Tony and your podcast. It is so entertaining and educational. Thank you for bringing it down and making real estate a lot more approachable. I just bought my first investment property, all cash. My husband already has a few under his name. Am I still considered a first time buyer. What if I take a mortgage out on that property?”
First of all, Carolyn, congratulations on your first investment property. That is really exciting and way to take action on that. The first thing I would say is that you are considered a first time buyer, but that has no benefit really, unless it’s going to be your primary residence. So you would have to live in the property and I’m going to go ahead and assume that you already live in a property with your husband. But if you guys are moving into this property, but you did say it’s investment, maybe it’s a house hack, then you could be considered a first time buyer. But usually those advantages are when you purchase the property, not when you go and refinance the property.
So for example, an FHA loan, when you purchase that, you can put as little as three and a half percent down, as your down payment. But if you go and refinance your property, you’re not going to be able to refinance it and only keep three and a half percent equity in there in the property. So my recommendation is that when you go to a bank, yes, they’re going to look at just you and it’s going to be great that you don’t have any other mortgages in your name. And hopefully that will make it a lot easier for you to get financing because you don’t have a large debt to income ratio.
When you are talking to banks, ask what their seasoning period is. Some banks will make you wait six months, sometimes up to a year, if you just purchased a property and before you can go and refinance the property. So make sure you ask that before you start going through the whole application process, but most likely the bank is going to do an appraisal on the property and they’re going to lend you 70 to 80% of the home value because you already purchased it in cash.
So Tony, do you have anything to add to that on… What have you seen right now for refinances on investment properties?

Tony:
Yeah. First I’m glad you went first, because you pretty much hit all the important stuff. You’re making this episode easy for me. But I mean, in terms of refinances lately, we honestly haven’t really explored doing any refis. All of the debt that we’ve secured on every single property we have, outside of our flips, has been longterm debt. And we just have no interest right now to refi because we locked up so many of these properties at 3% interest rates. So for us refi, doesn’t make a whole heck of a lot of sense.
And even selling some of our properties, we’re hesitant to do that because we’re not sure if we can get as good returns, even if we move into been something bigger. So yeah, I mean, if you can get the cash out, I probably would and this goes back to the people have different preferences when it comes to how they invest. Some people like the idea of paying all cash, not having a mortgage, other people like the idea of making your capital stretch. I’m more of the I want to make my capital stretch kind of person. So I think as long as this property were to cash flow, even if you take a mortgage out on that, I will go that route just so I can make my capital stretch as far as it can.

Ashley:
I think there’s a big misconception when people ask “Am I considered a first time home buyer?” And really that doesn’t have a huge effect on what kind of financing you can get because an FHA, you can get that three and a half percent down and this could be your 10th house that you’re buying. As long as you don’t have another FHA loan in your name, you can still get it, as long as it’s your primary residence.
There are programs out there for first time home buyers, where you work with a local bank or credit union where they say, “Okay, for the next six months, the next year, you are going to deposit this amount of money into your savings account. Every month, we will add to it or match it or something like that.” And then they help you improve your credit and get into a property. But a lot of times when you do one of these programs, you have to own that house and live in that house as your primary residence, sometimes up to five years. Where an FHA loan, you only have to live there for one year. So I think that ties your hand a lot, ties your hands behind your back a little bit, because you can’t… If you’re locked into a house for five years and it has to stay your primary residence, unless you want to commit mortgage fraud, which we do not condone here.

Tony:
Yeah.

Ashley:
So I don’t think there’s a huge advantage to those programs. I think if you guys are here, listening to this podcast right now, you have some motivation to save money on your own for your down payment and you don’t need to go to a bank to help you with saving that and then them lock you into living in a house for five years or whatever ends up being.

Tony:
That’s a good point, Ash. Just one last thing to add, is that even outside of these first time home buyer programs, there are lots of other programs and grants to help people purchase their properties. Again, this doesn’t apply so much to the investment property side, more so to the primary residence. But when we brought our first home, our first primary residence, we had the option of going with this first time home buyer program. But then there was also, California had this grant that was called the California Housing Federal Administration Grant or something like that. But it wasn’t just restricted as the first time home buyers, it was open to pretty much everyone, as long as you met these certain criteria. And that grant covered the majority of our down payment and it was like a super low interest loan that was spread out, pretty much over the life of our first mortgage.
So there’s so many different options that you can kind of seek and find if you’re looking to get some assistance with your down payment. But to Ashley’s point, if you’re looking to be an investor, you got to save up some of that capital. Unless you’re currently trying to house hack. If you’re trying to house hack, then obviously this is a great, fantastic approach for you but just don’t be so fixated on that first time home buyer. There’s lots of other programs out there, as well. I think just finding the right lending partner, the right mortgage broker to help bring those to your attention.

Ashley:
Well, Carolyn congratulations on that first investment property and hopefully this episode will help you what to decide with that.
Thank you guys so much for listening. I’m Ashley, @wealthfromrentals and he’s Tony, @tonyjrobinson. If you guys are loving the podcast, please leave us a five star review on your favorite podcast platform. We’ll see you guys next time.