FHA questions, specifically regarding the purchase of 2nd home.

[Jesse Olsen]

Hi Friends,

Brand new to this.  Looking to close on my first property within the next 6 months, I have narrowed it down to either a cheap Condo or a duplex. I make about $2,800 a month, 670 credit score and have $15,000 available for investment.  Currently I pay $1,450 W/ utilities for a newer 2 bedroom apartment (NEVER AGAIN, insanely priced for what it is!!!!!!!). 

Leaning towards a condo because between me, my girlfriend, and 1 extra tenant (plan to fill the spare room) the overhead  cost to maintain the property will be nothing.   I really like the idea of this because I am an avid stock investor, Just recently (2 years ago) I've started trading the market but long story short, I want to spend a good part of my life playing with stocks and don't like the idea of a house payment stopping the funding to my stock account.  

I am wondering, if I put down 20% on a condo, can I qualify for a FHA loan using 3.5% on a duplex in a few years if I occupy the future property?

I guess my biggest question, am I doing myself any harm getting into a condo at this age? Are there any special rules that an FHA loan can only be used as a first time home buyer?

Will it bar me from qualifying for another loan in the not so distant future? I would owner occupy the duplex bought with FHA financing in a few years, heck honestly in a few years if I can qualify for a fourplex, I will be doing so.

At the age of 22, I figure any investment right now is better than nothing.  I ran the numbers through the BP Rental Calculator and am looking at around a 10% return on cash investment with the investment in a condo, this does not include using 3 people's incomes in the scenario, instead it simply is being conservative guessing $850.00 a month rent for a 2 bed 1 bath.  Seems like an honest realistic estimate on return to me.  Between me and the two other likely tenants, there will be a cash flow of $1,050 if we all pay $350 each.  Sounds like a good deal to me!   The calculations I performed included all expected expenses I could possibly think of. 

Thanks for the help, much appreciated. 

[Nick G.]

Hey @Jesse Olsen, how's it going buddy. I'm 23 and went through a similar scenario last year when I bought my first place with an FHA loan.

FHA doesn't care if you're a first time buyer, they just provide a low-down and flexible loan program qualifications-wise. It is possible to have two FHA loans in your name, though the program is only intended for one at a time. If you bought a property FHA and are leaving it (and renting it out) because you "really need" a bigger house, they'll often make an exception and let you buy another property FHA without refi'ing the first one.

FHA won't lend on many condo complexes, the complexes must be FHA-approved. In my area, roughly only 25% are approved. Keep that in mind since it will limit your buying options.

Personally, I don't know your situation, but I would probably try to go for the duplex first if you can. They usually are better for you financially if you can swing it.

If you can only afford the condo though, I agree with you that as long as you don't pay something stupid for it, it's better to own sooner rather than later and throw away rent out the window.

To answer another question you asked - good lenders should be able to credit you 75% of your property's rental income as personal income for you if you're renting out your old proeprty to move into a new one. That 75% income credit can help a lot. If you're making $2800/month, but your old property rents out for $1,500/month, they'll let you count 75% of that ($1,200/month) as income, which is hugely helpful in offsetting the debt of your property's existing mortgage that they have to count against you when you go to qualify for another property.

Good luck man!