FHA Loan for Primary as a Real Estate Investor

[David Qian]

Hi guys, first post here: 

Has anyone had any experience with obtaining an FHA Loan for their primary residence as a full time real estate professional? More specifically if you own multiple investment properties and they show up on your Schedule E do you need to provide detailed information on each of the properties/including lease agreements etc? - I'm a full time real estate investor with a few dozen multifamily properties with multiple units each so there are over a hundred tenants. I have never gotten a residential loan before, all the mortgages I currently have on the multifamily properties are commercial loans.

Going through the FHA process has been a headache for me because the underwriter is asking for a lot of information for each of the properties including the signed lease agreements for all tenants. There are hundreds of pages of leases as we have over a hundred tenants. I'm going through the FHA process because this is a loan assumption and able to get a very favorable rate.

I'm wondering if anyone has gone through this process being a pure real estate investor (no W2 or other income) and how they would handle this situation. Is there a better way then compiling so much information? Additionally I've been reading there are compensating factors for FHA loans, I'm wondering if I can show more liquid assets (already putting 20% down for this purchase) so I could get a faster approval without all the other detailed information such as leases.

Thank you in advance,

~David

[Carlos Valencia]

Hello David, 

if you are putting 20% down already why not use conventional instead of FHA? On conventional you can put down as low as 5%-20% down if you want. Many sellers also prefer conventional offers as opposed to FHA due to the less strict guidelines when it comes to FHA offers. FHA has a few more disclosures. Based on your scenario I dont see why you would not qualify to use FHA since it doesn't appear you already have an FHA loan so the self sufficiency doesn't apply amongst others. As long as you qualify based on income I see no other roadblock.

@Albert Bui @Matthew Kwan

[David Qian]

Hi Carlos,

Thanks very much for the response. I'm using an FHA because it's an assumption loan and I'm getting a very favorable rate so I thought this would be better than using a conventional loan which at the current rate environment would be more than double the rate on the assumption.

My main question is while I do have the income through the investment properties does the FHA underwriter need to see the details of each properties including the leases of each of all the units. It will be hundreds of pages of documents since we have many tenants. I'm wondering if anyone has gone through this dilemma or have experience dealing with FHA underwriters/loan officers on this front. We have enough income but how much discretion does an FHA underwriter have? If there is any tips on making things easier (in terms of not having the submit all that paperwork) that would be appreciated. For example if you can show more assets than the actual loan does that help you get qualified etc.

[Carlos Valencia]

Oh I see so your assuming the loan and taking over got it. 

If you are using rental income and you already filled your taxes with those rental properties then they will use the your tax returns and schedule E to calculate your income. But if you have properties that you just started leasing then they will use your lease agreements for income at 75% of the rents. The 25 % is accounted for vacancy due to the lender being conservative. But tax return rental income they use 100% of the rents. Meaning that after reviewing your tax return and calculating your rental income whatever is left they will use that whole number and subtract it from your mortgage for that property and use that final figure. Hoepefully it breaks even or you are positive. If the figure comes back negative it will count towards your DTI. Long story short in order to use rental income they will need your lease agreements or tax returns depending on how long you had the property as a rental.

[Carlos Valencia]

We deal with this scenario all the time with getting lease agreements from our clients as that is our main niche working with investors who buy 1-4 units as rentals. Calculating rental income and providing lease agreements is nothing new for us. Let me know if you have any other questions. 

[Jacob Sherman]

if you're self employed and putting 20% down can use a 12 month bank statement program . Why FHA if conventional goes down to 3% on single family and 5% on multifamily ? what is the full scenario looking like ?