Attention Investors: Scale up starting with FHA

[Jewell Arceneaux]

Hello BPP Forum Family,

Currently in FHA property that I have been in for about 5 months now where I am creating value to add to equity. With the added equity and projected lower interest rates next year I am hoping to purchase another property with as little out of pocket as possible. I've done research and saw that another FHA loan is possible under certain circumstances.

1) Has anyone ever been able to secure second FHA loan under these rules?

2) If you ever had an FHA loan how did you go about getting into your second property with low money down

3) Any suggested creative financing deals you were able to use to get first investment property?

Thanks in advance!!

[Austyn Shuman]

Hello,

Great job on proactively creating value in your current FHA property! Leveraging equity and planning your next move with strategic financing is an excellent way to build your portfolio. Let me address your questions and provide insight from a lender's perspective:

1. Can You Secure a Second FHA Loan?

Yes, it is possible to obtain a second FHA loan, but only under specific circumstances, as FHA loans are designed primarily for owner-occupied properties. Here are the common exceptions:

• Relocation for Work: If your job requires you to move a significant distance from your current property (usually over 50 miles), you may qualify for a second FHA loan near your new workplace.
• Increase in Family Size: If your household has grown, and your current property no longer meets your family's needs, you may qualify for a second FHA loan to purchase a larger home.
• Co-Borrower Separation: If you co-signed on an FHA loan and are no longer living in the property (e.g., after a divorce or separation), you may qualify for a second FHA loan for your primary residence.
• Non-Occupying Co-Borrower: If you were a co-signer but did not occupy the original property, you may qualify for another FHA loan as the primary borrower.

Important Note: FHA guidelines typically require you to demonstrate that the current property will not meet your needs or is no longer feasible as your primary residence.

2. Transitioning to a Second Property with Low Money Down

If a second FHA loan is not an option, here are alternative strategies to minimize your out-of-pocket expenses:

• Conventional Loan with 5% Down: Once you've added equity to your current property, consider refinancing into a conventional loan to free up your FHA eligibility. This also removes the FHA's mortgage insurance premium (MIP) requirement, reducing monthly expenses.
• Owner-Occupied Financing: If your next property will also be owner-occupied (e.g., a duplex or multifamily), you may qualify for a conventional loan with as little as 3%-5% down.
• HELOC or Cash-Out Refinance: Use the equity you've built in your current property to secure a Home Equity Line of Credit (HELOC) or cash-out refinance. These funds can cover the down payment and closing costs for your next property.

3. Creative Financing for Your First Investment Property

If your goal is to acquire your first investment property, consider these options:

• House Hacking: Purchase a 2-4 unit property with a low down payment (e.g., FHA at 3.5% or conventional at 5%). Live in one unit and rent out the others to cover your mortgage.
• Seller Financing: Negotiate terms with the property seller where they act as the lender, often requiring a smaller down payment and bypassing traditional underwriting.
• Partnerships or Joint Ventures: Partner with an investor who provides the capital in exchange for a share of the property’s equity or income.
• Lease Options: Use a rent-to-own agreement, which allows you to control the property while saving for a formal purchase.
• BRRRR Method (Buy, Rehab, Rent, Refinance, Repeat): Acquire a distressed property with short-term financing, rehab it to increase value, rent it out, and refinance to recoup your initial investment.

Pro Tip

Stay in close communication with your lender as you approach your next purchase. They can help you strategize the timing and structure of your loans to maximize your leverage while keeping costs low.

Let me know if you’d like additional guidance or a deeper dive into any of these strategies!

Best regards,