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How to Buy an Investment Property With an FHA Loan
Did you know most recently, 34% of people who bought a home were first-time homebuyers? It's a lifestyle upgrade that many people make at some point in their life. If you're also a first-time homebuyer, the government has a program that can pay off for you big time.
The Federal Housing Authority (FHA) has a loan that you can apply for that has great benefits! People use these loans for buying their primary homes, but what about investment properties?
The tips below will help you out when you're looking into purchasing an investment property that will pay off for you in the long term!
On paper, FHA loans are ideally to be for the house that you live in, rather than one that you use as an investment.
It's a loan that people often seek when buying their first home, but you may have some options if you'd like to use it for an investment property.
What Are the Benefits of Using an FHA Loan?
You might be wondering what makes an FHA loan worth the effort. There are good reasons that people take advantage of these loans for their personal homes and when trying to purchase an investment home.
Here are some of the FHA loan benefits that you should understand:
The Credit Qualifications Are Lenient
Credit is often the biggest obstacle that a person faces when they're trying to qualify for a home purchase. A few errors from the past can come back to haunt you when you're seeking a new home.
Typically, you'll need a 749 credit score to get the ideal home loans and interest rates. This might be difficult for you to achieve if your score has taken a hit over the years and needs some repair. An FHA loan opens the door for you to still get approval - even if your credit is less than perfect.
Interest Rates Are Often Lower
FHA loans are also helpful because the interest rates are more affordable than, for example, Conventional loans. Although not drastic, the rates are more affordable so that homeownership is possible for more buyers!
You Can Get a Property With a Low Down Payment
A down payment is often a hindrance for many people. FHA loans allow people to get approved with a smaller down payment, which is just 3.5% of the purchase price.
This reduced barrier of entry makes homeownership easier to reach for people who might have otherwise struggled.
How Can You Use an FHA Loan for a Rental Property?
Now that you know the advantages of FHA loans, how can you use them to get a rental property?
When you purchase a home that has 2, 3, or 4 units (otherwise known as a duplex, triplex or 4 plex), FHA has a guideline that as long as the purchaser occupies one of the units as their primary , the property may be considered with an FHA loan, using the leniency of the lower down payment. Further more, the potential rental income on the other units, may be used to offset your qualifying income to purchase the property!
Look into FHA pre-approval to make sure that this product is for you. In obtaining a pre-approval , you'll need to work with a loan officer and provide proof of income, down payment and credit.
Be prepared to have all of your documents in order so that your application process is streamlined, and therefore avoiding any roadblocks. In addition to putting together your documents needed for pre-approval in Texas, make sure that you satisfy the following for an FHA loan:
- A total debt-to-income ratio of 55% or less
- Credit score of at least 600
- Proof of funds for 3.5% down payment plus closing costs and prepaid expenses
- Establish the property as your primary residence
Invest in a Duplex or Other Multi-Unit Home
One of the best ways to land your first investment is through a duplex or other multi-unit home. This allows you to stay within the parameters of the FHA rules, while still earning residual income each month. In practicality, depending on the incoming revenue from the other unit(s) , you are essentially living for free, or at least a very reduced cost!
The FHA loan allows for up to a 4 unit property, which means you can multiply your earnings!
Rent Out a Room in Your House
Another 'unofficial' way to earn income on your property is to rent out a room in your home. While you will not be able to use this income to qualify on any type of loan, it's a way to have a revenue stream. This option is not for everyone, but it's worth the mention.
Consider Special Circumstances
There are also special circumstances that allow you to use an FHA property for an investment. For example, if you have to relocate for a job, the FHA may allow you to rent out your first home after moving, rather than having to sell it.
Always look into the details of these life changes so that you're staying within the rules, while still enjoying the benefits that the FHA provides!
Start Looking for the Perfect Property
These tips will help you when you're looking into purchasing primary and/or investment property, that will be profitable too! The Loan With Jen Team is ready to assist with information when you're looking the journey of what the real estate market has to offer for you. We have 27 years of experience in the industry and a strong team of professionals that take pride in what they do.
Have a question? Take the time to contact us online or by calling (713) 579-3611 for more information!








