FHA Loans for Investment Property
FHA loans (Federal Housing Administration) are funded by the government. They’re aimed at helping those on low-moderate incomes to purchase a home to live in. In general, they can’t be used for investment properties—but there are some exceptions.
Understanding FHA Loans and what they Can and Can’t be Used for
- The requirements of an FHA loan
- When you can use an FHA loan for an investment property
- Refinancing an FHA loan
The requirements of an FHA loan
An FHA loan is intended to finance a primary residence. They’re targeted to help first-time buyers and/or those with less-than-perfect credit ratings to get on the housing ladder.
Those who take advantage of them must:
- Use the money to purchase their primary residence.
- Move in within 60 days of closing.
- Live in the property for a minimum of one year.
In addition, the property must:
- Provide a safe and healthy environment.
- Be structurally sound with no defects.
- Be secure.
These latter three requirements are referred to as “livability standards”.
When you can use an FHA loan for an investment property
While FHA loans can’t technically be used to fund a property on which you hope to make a profit in the short or mid-term, there are some exceptions. These are:
- By purchasing a multi-unit property: You can then live in one unit (for a minimum of a year) and rent out the rest. This can potentially provide you, as an owner-occupier, with enough income to either cover your loan repayments or even make a profit.
- By renting out individual rooms: As long as you satisfy the “living in the property for the first year” requirements, you’re still free to rent out a room (or rooms) to a lodger. You can do this at any time—even within the first year—without violating any FHA loan rules.
After you’ve lived in the home for a minimum of a year, if you’re forced to move for work, then you can legitimately buy a second home and rent out the original one.
Refinancing an FHA loan
There are circumstances when you can refinance your FHA loan for one with a lower interest rate. These are known as FHA Refinance loans or FHA Streamline Refinance.
This can be done if and when:
- You’ve lived in the property for a minimum of 210 days.
- You’ve made at least six monthly repayments.
- If still within the first year of the loan, no repayments have been made more than 90 days late.
- After the first year of the loan, you’re allowed to have one late payment (as long as it’s not in the previous 90 days of refinancing).
In short, except for multi-unit properties or work relocation as mentioned above, FHA loans aren’t usually suitable if you’re looking to invest in property. Happily, there are many other options available to you, including those that don’t require you to undergo credit checks or disclose your financial status. Such loans are typically provided by hard money lenders. These can be taken out even if you’ve taken advantage of an FHA loan to purchase your primary residence.
The ability to borrow in such a manner—often with a fix & flip loan or DSCR loan—provides everyone with the opportunity to get on the real estate investment ladder, no matter what their financial circumstances might be.
Contact BRRRR Loans for Alternatives to FHA Loans for Investment Property
There aren’t many scenarios when you can use an FHA loan for an investment property. But there are plenty of other options. At BRRRR Loans, we provide a variety of funding options, including fix & flip, DSCR loans, and more…
Head to https://www.brrrr.com for more information and get in contact today to discuss your options.
Buy, Rehab, Rent, Refinance, & Repeat. A nationwide direct lender to real estate investors. If you have a project that needs to be funded, you’ve come to the right place.