✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home buyers.
FHA has funded over 50,000 multifamily mortgages. It offers benefits such as a 3.5% lower down payment and requires a minimum credit score of only 500–580, etc. So while using FHA loans for an investment property seems appealing, it’s not that straightforward.
You can only use FHA loans to buy primary residences. So, you can employ an FHA loan for an investment property if you’re willing to live in the property. However, there are ways to utilize an FHA loan for an income-generating investment property.
👉FHA Loan Benefits
- FHA loans offer both fixed-rate and adjustable-rate mortgage options.
- The interest rate on an FHA loan may be 0.15% to 0.20% higher than the interest rate on a conventional loan.
- With an FHA loan, closing costs could be partially financed and added to the monthly mortgage payment.
What Is an FHA Loan?
The Federal Housing Administration issues FHA loans, which are government-backed loans designed to assist low and moderate-income buyers. These loans provide an opportunity for homeownership with reduced upfront costs. You can use a mortgage calculator to estimate how these lower costs might impact your monthly payments.
FHA Occupancy Requirements
As the homebuyer, you must fulfill the following FHA occupancy requirements:
- You should move in within 60 days of closing and occupy the property for at least a year.
- The house must meet the FHA minimum property standards, such as safety, security, and soundness.
- At least one borrower must meet the occupancy requirement if multiple borrowers are listed on the mortgage, according to FHA regulations.
Can You Use FHA Loans for Investment Property?
No, you cannot use FHA loans for investment properties because they are mainly for owner-occupied properties. The Federal Housing Administration requires you to live on the property when you acquire an FHA loan.
How Do I Use FHA Loan for Investment Properties?
You cannot take an FHA loan for investment properties. However, there are some circumstances where you can use FHA loans against your property purchase.
Rent Out Your Primary Residence
To get an FHA loan for an investment property, you can rent out your primary residence. Then you can take out an FHA loan for your second residence by following the FHA’s rules regarding property use and leasing.
FHA 203k Loan
With FHA 203(k) loans, you can combine financing for both the purchase of a property and the cost of any necessary repairs or renovations into a single loan. The Federal Housing Administration insures FHA 203(k) loans.
Purchase a Multiunit or a Multifamily Property
You can use an FHA loan to buy a multiunit property of up to four units or a multifamily property of five or more units. In both cases, you must live in one unit and rent out other units to generate rental income.
>>FHA Multifamily Loans: How to Apply for One?
Refinance Your FHA Loan
An FHA-streamline refinance is a process for existing FHA loan borrowers to refinance their mortgages. A minimum of 210 days must have passed since you closed your original home loan. To make financial improvements, consider refinancing your FHA loan.
You may be able to change your loan terms, obtain better interest rates, or move to a different FHA program by looking into streamlined refinance options.
FHA Streamline Refinance
By opting for a refinance, you can have lower interest rates without a full credit check. However, it’s important to note that this type of refinance is only permitted when you already have an FHA loan and want to refinance another FHA loan.
Get Pre Approved for a Mortgage🏡
Select Your Loan Type
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New Home Purchase
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Mortgage Refinance
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Cash-out Refinance
Bottom Line: FHA loans for Investment Property
While you can’t take an FHA loan directly for an investment property. Using these methods can help you with down payment requirements, more flexible credit criteria, and government-backed insurance. FHA loans play a crucial role in helping individuals and families achieve the dream of owning a home.
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Frequently Asked Questions
Can I use an FHA loan for investment property purposes?
The majority of FHA loans are intended for owner-occupied homes. If you want to buy and renovate properties, you can take advantage of certain FHA programs, such as the 203(k) loan.
Can I rent out my primary residence financed with an FHA loan?
Yes, once you are eligible, you can think about renting out your FHA-financed primary residence for additional income. However, adhering to FHA guidelines on property use and leasing is crucial.
How can I purchase a fixer-upper using an FHA loan?
You can utilize an FHA 203(k) loan, which allows you to finance both the purchase and renovation costs on one loan.
Can I refinance my existing FHA loan for investment purposes?
Yes, refinancing an FHA loan can be a wise decision to improve financial terms. You can explore more options, such as changing loan terms, adjusting interest rates, etc.
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