Re-using FHA loans to grow a portfolio

The purpose of this article is to share my experience. I am not a lender or a mortgage expert. Mortgages are consistently changing so talk to a knowledgeable loan officer!

FHA loans are majorly misunderstood with a lot of people I talk to. FHA stands for Federal Housing Authority. It's commonly misunderstood to only be for first time home buyers which is not the case! The only real stipulations are that you can only have one FHA loan at a time. They are awesome for 2-4 unit properties and give you a great low down payment option to buy these properties. To the best of my knowledge as this is written in June of 2021 your only other option is to put 15% down on a conventional loan to buy a 2-4 unit IF you're going to live in it. I didn't have this type of money when I started so I would have been stuck buying a single unit.

The unfortunate part of the FHA loan is that you can only get one at a time! So you can't buy FHA one year and then buy again FHA the next year. UNLESS you add value to the property and refinance into a conventional loan. To do this you need to add quite a bit of value or the market needs to go up a lot. Remember when you buy FHA you buy at 96.5% LTV and you need to be at 75% to refinance into a conventional loan if you're going to keep it as an investment and not live in it for another year. This isn't impossible to do but you need to find a good deal and typically something that will barely pass the FHA inspection. Then you need to do the rehab and refinance into a conventional loan. This is helpful because you lose the PMI (private mortgage insurance) and you can use the FHA loan again.

If you do this right you can use FHA loans over and over to build a great portfolio in any market!