Real Estate Investment Tips

Real Estate Investment Tips

  • Matt Frahm
  • 09/18/23

Looking to invest in a multi-unit but have limited capital? You should really look into FHA financing! Read the list below as to why this financing vehicle could be the right fit for you:

  • Owner-Occupancy Requirement: To qualify for an FHA loan on a multi-unit property, you must plan to live in one of the units as your primary residence. This means you cannot use an FHA loan for a purely investment property.

  • Number of Units: FHA loans are available for properties with up to four units (a fourplex). You can use an FHA loan to purchase a duplex, triplex, or fourplex, as long as you meet the owner-occupancy requirement.

  • Down Payment: The down payment requirements for multi-unit properties are slightly higher than for single-family homes. Typically, for a multi-unit property, you'll need a minimum down payment of 3.5% of the purchase price for a duplex and 3.5% to 5% for properties with three or four units. The exact down payment requirement may vary based on factors like your credit score and the lender's policies.

  • Rent from Other Units: FHA allows you to use rental income from the other units to help qualify for the loan. This can be helpful in meeting the debt-to-income ratio requirements. However, you will need a history of rental income, and not all of it will be counted as qualifying income. Consult with a lender for specific details.

  • Property Requirements: The property must meet FHA's minimum property standards, which can include items like safety, habitability, and condition requirements. FHA appraisers will assess the property to ensure it meets these standards.

  • Loan Limits: FHA has loan limits that vary by location, and they are typically higher for multi-unit properties compared to single-family homes. Check with the FHA or your lender for the loan limits in your area.

  • Refinancing: After meeting the owner-occupancy requirement, you can consider refinancing the FHA loan into a different loan product if you wish to move out and rent out all units or if you want to purchase another primary residence.

Using FHA financing to purchase a multi-unit property can be a viable option for first-time homebuyers or individuals looking to live in one of the units while generating rental income from the others. Be sure to work with an experienced mortgage lender who is knowledgeable about FHA multi-unit property loans to guide you through the process and provide specific details based on your financial situation and location.

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