FHA Loan on Second Property?

Question

I have long been obsessed with real estate and have realized that I just need to commit to getting my first deal done. Now that I am more serious about making it happen, I am trying to decide what the smartest option is for my situation.

I currently own a single family house with a conventional mortgage (20% down on purchase price). We have only been in the home for 1.5 years, so our LTV is only at about 69%. We don't have enough savings in the bank to make any kind of substantial downpayment with cash. Three strategies that I continually think about in order to purchase a multifamily (and would like feedback on) are:

1. We keep our single family, rent it out, and then apply for a FHA loan on a 4 unit or smaller, allowing us to pay a smaller down payment, and we would live in one of the units for the required amount of time. My question is- would we qualify for an FHA loan if we already own and keep a single family?

2. We continue to do some rehab on our current fixer upper, hoping that it will appraise for higher, allowing us to take a HELOC out to use as a partial downpayment for a multifamily. My question here is, if we don't qualify for an FHA loan on this, are there any loans available that allow for a smaller downpayment, like 10-15%, or do they all require 20-30% downpayment range?

3. Is the best, most simple option, for us to sell our single family and then apply for an FHA loan on a multifamily? I am resistant to this as I would rather just keep it as part of our portfolio and would preferably stay in a single family home for the ease and comfort of raising my young family in our current school district.

What do you think is the smartest option for my situation? Thank you for your time in responding to a newbie like me!

Wayne Brooks · Answer

@Brenna Chalifour @Theo Hicks @Christopher PhillipsNo, no, no.. Brenna has a Conventional on her primary, 1.5 years old.....you can get a fha loan as long you are going to occupy it, and convince the lender you Will occupy, no matter how many other properties or non fha loans you have.@Chris Mason ??

Chris Mason · Answer

I'd get a HELOC to 90% CTLV on the primary, boom now with that and your other savings now you have the 20% down on a 2-4 unit.Someone at your local REIA will know who is doing 90% CLTV HELOCs on primary residences in your area, and will know who is the best local for the purchase mortgage using those HELOC funds for the down payment -- will probably not be the same lender for both. Right tool for the right job.FHA loans are not particularly investor friendly, by design.

Christopher Phillips · Answer

@Wayne BrooksFHA isn't really designed that way. It's really for 1st timers. There are a few options, but usually require that a person has a hardship like moving beyond a certain distance due to a job change, getting a divorce, or a sudden increase in family size.It's at the discretion of FHA to approve 2nd homes with an FHA loan since they were designed for first timer home buyers, not for people that just want to move out to get an investment property, even if house hacking.

Christopher Lee · Answer

Hello @Brenna Chalifour,This very topic came up in the last REI meetup that I attended. An investor was house hacking his first property which he used an FHA loan to acquire it and wanted to know what his options were for his second property. The experienced investors stated that so long as he refinanced out of the first FHA loan he could have as many as he wanted just not simultaneously.You've stated that your first was a conventional loan, that would lead me to believe that it is possible.And of course from what I've heard here on BP a lot, is that there's never one definitive way to do things. You mentioned that you didn't have the money to make a big down payment, there is a blog post here on BP on using private money lenders that might be helpful if you haven't already read it. I'm thinking you could keep your existing house and find someone to fund your first deal.https://www.biggerpockets.com/renewsblog/find-priv...I'm thinking that you might be able to find someone to fund your next deal and keep your first house.Hope this was at least a tad helpful, I'm a newbie as well and trying to get started with long distance investing since my backyard is nuts right now.

Brenna Chalifour · Answer

Everyone, thank you for your advice. It seems like there is mostly a consensus that although FHA may be possible, it may not be my best option as it is not designed for my needs. I will continue renovations, see what I can take out for equity from my house, and start researching the best lenders for my needs.

Theo Hicks · Answer

You're only allowed one FHA loan at a time, so you would need to refinance into a new loan, which you should be able to do if you have 31% equity.

Christopher Phillips · Answer

@Brenna Chalifour In general, no. Unless you’re relocating for a job, you can’t use an FHA loan when you just bought a house 1.5 years ago. FHA loans aren’t meant for investors.