Should I use FHA loan

Question

Is it smart to use an FHA loan to purchase a multi family investment property as a first time buyer? Or should I pay cash for a single apartment. I thought it’d be a good idea to use fha loan since I’ve never purchased a property and that way I can keep my money and use it to invest in something else? What are your thoughts?

Stephanie P. · Answer

Some quick points:

• FHA is great for buying properties that have multiple units (up to 4) when you're going to live in one.
• You can do either a 203K renovation loan or regular FHA insured loan.
• FHA is not only for first time home buyers.  
• FHA  is not supposed to be used to enhance someone's investment portfolio.  If you're looking at an FHA loan to live in for a while and then go do it again, you'll have to prove that you're relocating and that you're establishing residency "outside the reasonable commuting distance from his/her existing primary residence." HUD handbook 4155.1 4.b.2.c-d. Most underwriters use 50 miles as a reasonable commuting distance to use FHA again. 
• the cost for an FHA loan can be prohibitive.  Upfront MIP is 1.75% and monthly MI is .85%.  The Upfront is financed into the loan and the .85 never goes away regardless of the ltv, so it's a more expensive alternative to conventional.
• FHA does allow you to purchase units with the least amount of downpayment at 3.5%.

Hope that helps clarify

Stephanie

Dhru Das · Answer

@Louis Trinca...yes FHA is great. I don't think it has to be your first home to qualify for FHA loan. I just finished my 2nd home by FHA 203k loan and it was my 2nd home. However my 1st loan was conventional. That being said, as long as you live in the property for 1 year(Normally the lender will have you sign the Letter of Intention) you should be able to do whatever you want with the property after that...like renting it out or selling etc..You can also buy another FHA mortgaged property as long as you sold the previous FHA property or refinanced into a conventional loan. As far as I know you can only have one FHA property at a time but you can buy as many as you want provided you live in each property for 1 year and then sold/refinanced out of the previous FHA loan. This is just what I know. Other investors can provide their input as well. If you look into rehabbing the properties then you should look into FHA 203k program. It takes time, and lot of documentation but its worth it.

Chris Youssi · Answer

I would use FHA all day every day as it will allow you to purchase something for a very minimum down payment usually 3-5% depending if you ask seller to help with closing cots.

This way you can rent it out and do it all over again. 1-4 families eligible for FHA financing.

Maria McCreless · Answer

@Louis Trinca, sounds good. I would definitely use FHA then. You can purchase up to 4 units with FHA and usually you have to live there for one to two years.  No the FHA loan is not specifically for first time homebuyers.  I am not sure if everywhere has the first time homebuyer program, but that program is specifically for first time homebuyers.  With this program the buyer takes a course and their down payment is paid by the program.  This is a second loan against the property and is only paid back if the property is sold (paid at closing).

Chris Youssi · Answer

Thats a tough racket - great cash flows but labor intensive and very very little appreciation IMHO

Chris Youssi · Answer

No you are allowed more than 1. How many is a good question. I do know that sometimes it can be hard to find a lender that understands investors and some of the guidelines for same. EG>>> most lenders will tell you that only 4 properties are allowed to be financed in the secondary market when in fact you are allowed 10. Secondary market meaning fixed rate financing for the full term of the loan vs someone like myself who owns substantially more than 10 props I have to seek commercial funding which is not as stable - typically 5 year balloons. More info that maybe you were looking for - also not heard of FHA financing having to be your first prop. Hope this helps

Louis Trinca · Answer

I won’t be able to directly reply to everyone’s comments, but I’ve read everyone’s input and knowledge and they’ve all helped me out a lot! Thank you for your help!

Louis Trinca · Answer

Ok sounds good. There are a few places I’m interested in the south side of Chicago but I’m not sure I want to deal with bad tenants on my first investment.

Should I use FHA loan

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