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Can I Use an FHA Loan to Purchase an Investment Property?

Generally, the answer to this question is “no.” FHA mortgage loans were created so that people, typically first-time buyers, would be able to afford purchasing a home.

However...

There is a way to work around that stipulation so that you can apply for and be granted an FHA loan (so long as you meet the eligibility requirements) on a property that will earn you an income.

Where Do I Begin?

Your best bet is to start looking at multi-family homes; think duplexes, triplexes and quadplexes. The only caveat here is that you will have to live in one of the residences within the multi-family unit (it must be your primary residence).

You will have to be approved for an FHA loan and that means providing the appropriate documentation showing proof of income, a valid social security number and an employment verification letter among other eligibility requirements.

Requirements For FHA Loans

FHA loans are great especially because of the low down payment required to purchase a home. Where a conventional mortgage might require 20% down, FHA loans typically require a minimum 3.5% down regardless of how many units are within the property you want to purchase.

You can also use gifts (i.e. cash) and down payment grants (money you do not have to pay back so long as you reside in the home for a specified period of time) to purchase a home. You will also have to meet the minimum credit score requirement of 580 to be eligible for an FHA loan.

Additional Options For Real Estate Investing

Another option is to purchase a single-family property as your primary residence using an FHA loan. You can later purchase another home to use as your new primary residence and refinance the first residence you purchased.

Like anything else regarding changes and adjustments to a loan, refinancing an FHA mortgage does have certain requirements including:

  • The borrower (you) having made a minimum of six payments on the FHA loan
  • A minimum 210 days must have passed since the closing of the FHA loan you want to refinance.

Fixer Upper Investment Property

If you are willing to live in a fixer-upper, you may want to consider applying for an FHA 203(k) loan. With an FHA 203(k), you will be able to make renovations and have the cost of materials and labor rolled into the FHA 203(k) loan you receive. Note that there are two different kinds of FHA 203(k) loans (the Standard and the Streamline)—be sure to apply for the one that best suits your repair and renovation needs.

Review and Research

FHA loans are a good way to begin building an investment portfolio and gain landlord experience if you opt to use your loan for purchasing a multi-family home. You should review your options with a mortgage broker before applying for and/or entering any kind of loan agreement.

If you are still unsure, compare the differences between conventional mortgages and FHA loans.

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