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Updated over 11 years ago on . Most recent reply
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What are my loan options for a rental property?
My husband and I bought our home one year ago using a FHA loan here in Los Angeles. Our home only cost 2/3 of the amount we were approved for. We are now looking to buy a rental property in Grand Junction, CO. I'm wondering if we would qualify for a second loan for the 1/3 of the amount "we didn't use." I'd like to know what kind of conventional loans would be available to us and what is the minimum down payment for those loans. We are both employed full time and our credit is still good.
What would be the best way to find a lender? Is it best if they are local?
Most Popular Reply
An FHA loan is for owner occupied properties. So you will not be able to use an FHA loan for the property in Colorado unless you move and live in it. In this case you can have two FHA loans.
In fact you can have more than one FHA loan if you meet some criteria:
- You have a family size increase: In this case you have to show the lender that you need to upgrade your space due to increasing the number of dependents in your house. (This one is hard to prove for the underwriter)
- Relocation: if you move over 90 miles from the location (usually for new employment) of the current property that has the FHA loan.
- 3 years after the last FHA loan purchased: This one holds but the assumptions is that in 3 years you do need more space.
So if you meet any of this criteria then you can buy a new property with a new FHA loan and keep the house you recently bought with the original FHA without refinancing. You can do whatever you want with it (aka renting it)
You cannot split approved % (like 1/3 of the amount) because that would give you more than one FHA loan without you meeting any of the criteria (especially because you would not move there).
To me the best way to find a lender is to go local. Interview as many lenders as you can an work with the lender you feel more comfortable and that is knowledgeable about the rules.
Most likely you will have to get a conventional loan and put 20%- 25% down because the property will be consider an "investment" property. Therefore, I don't think you can get a low down payment because you wont be living in the property. (I asked this to me lender)
Yet, it is possible for you to get a conventional loan for 5% down payment if the underwriter thinks or assumes the house in Colorado would be a "retreat" (or second home) for you; but this is hard to pull because you will be getting it with the intention to rent. (If someone else could confirm this I would appreciate it)
Warning: I am not a lender. I did all this research when I was trying to finance my properties. This is the information that the lenders gave me and BP
Have a good one!