FHA INVESTOR LOANS
If you’re looking to take the dip into real estate investment, you’re probably wondering what your financing options are. FHA mortgage loan requirements tend to be a little trickier when it comes to investment properties, since they’re considered a greater risk for FHA mortgage lenders. If you’re having trouble qualifying for an FHA mortgage loan, you don’t have to give up on your dreams of becoming a landlord. You may be able to use an FHA mortgage to secure an investment property.
WHAT IS FHA MORTGAGE LOAN?
The U.S. Department of Housing and Urban Development oversees private FHA mortgage lenders provides federal insurance for FHA mortgage loans issued by eligible FHA mortgage lenders. Your eligibility for an FHA mortgage is based on your down payment, credit, capacity and income. If you’re approved for an FHA mortgage loan, you can buy a property with one to four units with as little as 3.5 percent down.
There are several different types of FHA mortgages you can apply for. A 203(b) loan is designed for first-time home buyers. The 203(k) loan program lets you make repairs or improvements to a property you already own. There are additional FHA mortgage programs available for seniors and individuals who are looking to buy manufactured or mobile homes. Buyers are subject to federal mortgage limits, which are based on where the property is located.
PRIMARY HOME REQUIRMENT
When you take out an FHA mortgage, it’s based on the understanding that the home will be your primary residence. This means you have to live in the home for the majority of the calendar year. FHA guidelines require you to establish occupancy within 60 days of buying the home. You also have to sign the mortgage note before the property is considered to be owner-occupied. If you’re married, only one of you has to actually occupy the home to qualify.
According to the FHA mortgage Handbook 4155.1, FHA will not insure more than one primary mortgage for the same borrower. FHA mortgage loans also aren’t available for the purchase of an investment property. An exception is allowed if you’re using an FHA mortgage to refinance a home that was previously purchased as an investment property.
FHA MORTGAGE TO BUY INVESTMENT HOME
While the federal FHA mortgage guidelines state that you can’t use an FHA mortgage for the sole purpose of buying an investment property, you can still qualify if you’re planning to live in the home full-time. For example, you can buy a four-unit building with an FHA mortgage as long as you live in one unit while renting out the other three. It may even be possible to use the projected rental income from the other units to help you qualify for an FHA mortgage loan.
With a 2 to 4-unit multifamily home, the income requirements are typically the same for a single family property. If you’re looking at a multi-family home with three or four units, you may have to show that the property can generate at least enough income to equal the monthly mortgage payment, along with insurance and taxes. While the FHA mortgage program is designed to let you borrow with a small down payment, you might have to kick in a little more if you’re buying a multiple-unit home.
ADVANTAGES AND DISADVANTAGES
Purchasing an investment property with an FHA mortgage is a great way to get into real estate. No other loan program will allow you to jump into investing without having to put up a lot of money up front. If you’re able to keep the property rented on a steady basis, the rental income alone may be enough to cover all of your housing expenses. Typically, FHA mortgages offer the lowest interest rates than conventional loans so if you have good credit, it could add up to even more savings.
The downside of using an FHA mortgage to purchase an investment property is the residency requirement. Before you apply for an FHA mortgage, you need to be sure that the property is located in area that you’ll be comfortable living in for the long term. If you take out an FHA mortgage but you don’t meet the residency requirements, you could end up being prosecuted for fraud. More over if you don’t get in legal trouble the FHA mortgage lender could decide to accelerate your loan which means you’ll have to pay off the principal remaining balance in full.
Investing in real estate can be lucrative but there are plenty of pitfalls you should be aware of. As with any property, you want to make sure your making a good decision. Also, if you’re planning on taking out an FHA mortgage to buy your first place, you need to know exactly what the rules are to make sure your investment dream doesn’t get you in trouble down the road.