FHA vs FHA 203k Loan for House Hacking

[Hyeseong Park]

Hello, 

I'm a newbie investor and after 2 flips done, I'm trying to join in House hacking world and I got a question.

As I didn't start with FHA Loan yet, I'm trying to go House Hacking with a distressed 4 units property to start it out in PA. But as far as I know, just FHA loan is not gonna work for distressed property? If I need to rehab the property, then, I need FHA 203k loan instead of FHA loan?

And may I know what the differences between them exactly are?

Also I want to know if there is any different terms or conditions to go each. 

Thanks:)

[Derek Brickley]

Hey Hyeseong,

For FHA loans you may struggle when buying a distressed property. Yes a 203k may work, but there are a lot of hurdles to jump through and unless you are getting an extreme deal on it they rarely make sense. Plus with FHA 4 unit properties you need to pass the self-sufficiency test which could cause more problems.

A conventional 5% down might be a better option to buy a distressed property since conventional appraisals are more focused on the livability compared to cosmetic issues.