FHA vs. Conventional on First Investment Property

[Thea Linkfield]

Hey BP Community! I am about to put an offer on a property, and I am trying to figure out if I should go with an FHA or Conventional Loan for my finance option. I currently do not have a mortgage, and am looking to purchase this property as a rental. It has 3 buildings on it that can be rented out, and I am considering doing one as an AirBnB. This would be my first time buying, and I am wondering if I can use the Florida First-Time Buyer Program for these intentions. Also, there is some potential issues with the property survey that show the current home's driveway on the neighbor's property. This hasn't been an issue in the past for the current Owner since it is her brother's property. Can I still receive an FHA loan with an "issue" like this? Basically, I want to make sure I get the best bang for my buck on my first investment property! Any help is greatly appreciated!

[Cara Lonsdale]

Congrats on your first transaction.  Let me offer you some thoughts.

FHA loans that offer the standard 3.5% down payment option are for owner occupants only. Owner occupants are required to live in the property for at least 12 months, and certify under penalty that they will do just that. What you do after the 12 months is up to you. However, these initial 12 months are required in order to be compliant with the terms of the loan. This is not a technicality, this is an absolution. You can go to jail for loan fraud if FHA discovers that you are not living in the property for the initial 12 months.

The same is true for most, if not all of the first time home buyer programs.  In fact, some of those that offer down payment assistance will often times require more than a 1 year commitment....many of them 3 years.

It will not be possible for him to utilize FHA or even a conventional loan product intended for fist time home buyers to purchase an investment property. They all have occupancy requirements for the owner.

Best just to save up for the down payment. Look into HomePath in your area.  They offer a 10% down investment program for the first 4 properties.  The purchase has to be one of the HomePath homes, if any are available in your area.  The program is slim now that short sales aren't so rampant, but there are a few still out there.

Also, regarding the cloud on title (which is what the egress issue is considered), this is a big issue REGARDLESS of your financing.  Things seem friendly now because the infringed property is related to the Seller, but what happens when he sells his property and the new owner says "no way".  Then you have a big problem.  Get that resolved BEFORE pursuing it.  The Seller needs to have a clear resolution.  If she is related to the neighbor then it may be a simple CC&R or deed restriction added that they both agree to that grants an easement for the property you are looking for.  Either way, I would get that resolved before even considering a property.

Best of luck to you!