FHA Loans in San Francisco for Young Speculators

Anything wrong with this picture? (Nah.)

Three 20-somethings get together and buy a two-unit apartment complex for nearly a million dollars in San Francisco, pay $33,000 as downpayment, as the rest comes from low-rate FHA mortgage, fully guaranteed by the federal government.

With FHA Help, Easy Loans in Expensive Areas
(David Streitfeld, 11/20/09 New York Times via Yahoo Finance)

"SAN FRANCISCO -- In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

"A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

""It was kind of crazy we could get this big a loan," said Mr. Rowland, 27. "If a government official came out here, I would slap him a high-five.""

How did they accomplish this feat?

"The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200."

""We were resigned to waiting another year," said a second partner, Michael Bedar, 31. "Then we read about the F.H.A. I had never heard of it before, and couldn't quite believe it. But it was the answer to our problems." They put down about $33,000, split among the three of them."

"Their building, for which they paid $963,000, is on a quiet street in the up-and-coming Hayes Valley neighborhood, close to fashionable restaurants they have already been trying out. The friends plan to live in the bottom unit and rent out the top. Thanks to rock-bottom interest rates, none of them will pay much more than a thousand dollars a month. "Everyone should have the chance to do this," Mr. Kurland [third partner] said."

""We're banking on real estate," said Mr. Kurland, 24. "Everyone expects prices to keep going up.""

3.4% down for a $963,000 property that they purchased for speculation (investment). Fully insured and guaranteed by the federal government.

The article concludes with these sentences:

"Everyone may get a chance.

"A few weeks ago, Congress extended the higher lending limits for another year. Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750.

"His bill would make the new limits permanent."

Why stop at $839,750? Let the good time rolling again, shall we? The country is broke anyway.

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