1st Time Homebuyer FHA Investment Property Mortgage

FHA Loans for Investment Properties?

Are you wondering if an FHA loan can be used for investment properties? 

If you’re asking yourself this question, you’ve come to the right place.

This article will guide you through how you can use FHA loans to potentially buy investment properties. Keep reading to determine whether this path makes sense for you.

Key Takeaways

  • FHA loans let you buy a house with just 3.5% down, making it easier for first-time or low-income buyers to become homeowners.
  • You can use an FHA loan to purchase multi-family properties if you live in one unit and rent out the others, allowing you to earn rental income.
  • To get an FHA loan, the property must be your primary residence for at least one year after buying it.
  • There are benefits like lower down payments and competitive interest rates when using an FHA loan for investment properties but also drawbacks such as higher upfront costs and strict property standards.
  • Exploring different types of FHA loans, like fixed-rate mortgages and 203(k) rehab loans, can provide options tailored to your needs for buying or renovating homes.

What is an FHA loan?

An FHA loan is a mortgage backed by the Federal Housing Administration. This type of loan allows homebuyers to purchase a house with a down payment as low as 3.5%, making it an attractive option for those who don’t have a lot of money saved up.

The government guarantees these loans, which means lenders are more willing to offer favorable terms to borrowers. 

You might be thinking about using an FHA loan for investment property due to its lower down payment requirement and easier credit qualifications. This kind of mortgage not only helps with buying your first home but also comes in handy if you’re eyeing properties that need some work before moving in. With features like the 203(k) rehab loan, buyers can finance both the purchase and improvements of a property under one FHA loan.

If you’re considering an FHA loan for an investment property, remember it must primarily serve as your residence at first; however, there’s flexibility when purchasing multi-unit homes.

FHA occupancy requirements

The FHA requires you to make the property your primary residence if you’re using an FHA loan. This means you must live in the home for at least one year, making it your main place of stay.

The rule ensures that people use these loans for their intended purpose: helping homeowners settle into their homes — not for buying investment properties right off the bat.

If you decide to go this route, you’ll need to move into the house within 60 days of closing and stay there for a majority of the year. These requirements are strict because FHA loans offer benefits like lower down payments and more lenient credit score requirements, geared towards assisting first-time or low-to-medium-income buyers in purchasing a home they will live in.

Can you use an FHA loan for an investment property?

Yes, you can use an FHA loan to buy a multi-family property and live in one of the units. This allows you to generate rental income from the other units while fulfilling FHA occupancy requirements.

Buy a multi-family property

Friends eating outside multi-family home

Buying a multi-family property with an FHA loan can be a smart move for prospective homebuyers interested in investment properties. You must live in one of the units as your primary residence, but you can rent out the others.

This setup allows you to generate rental income that can help pay the mortgage and other expenses associated with ownership.

Make sure you understand FHA loan requirements before diving in. These loans are suitable for buildings with up to four units, offering a unique opportunity to become both a homeowner and an investor simultaneously.

With low down payments and less stringent credit score criteria, securing an FHA loan for a multi-family property might be easier than going through traditional financing routes.

What are the benefits of using an FHA loan for an investment property?

Using an FHA loan for an investment property has several benefits:

  1. Lower down payment: With an FHA loan, you can put down as little as 3.5%. This makes it easier to purchase an investment property without tying up a large sum of money.
  1. Competitive interest rates: FHA loans often offer attractive interest rates, helping you save on borrowing costs over the long term.
  1. Easier qualification: FHA loans are more accessible to borrowers with lower credit scores or limited funds, making it easier to qualify for financing for an investment property.
  1. Flexibility in property types: You can use an FHA loan to buy a variety of properties including single-family homes, duplexes, triplexes, and even fourplexes, providing flexibility in your investment options.
  1. Assumable loans: FHA loans are assumable, which means that if you sell the property in the future, the new buyer may be able to take over your existing FHA loan at its original terms.

What are the disadvantages of buying an investment property with an FHA loan?

There are some drawbacks to keep in mind when considering using an FHA loan for an investment property. Here’s what you need to consider:

  1. Higher upfront costs compared to conventional loans due to the requirement of mortgage insurance.
  1. Stricter property standards and appraisal requirements may limit your options for investment properties.
  1. Limited borrowing capacity as FHA has specific loan limits, which may not be sufficient for higher-priced investment properties.
  1. Longer closing timelines due to additional paperwork and approval processes, potentially causing you to miss out on competitive market opportunities.
  1. Limited flexibility in financing terms, including higher interest rates and stricter repayment terms than conventional loans.
  1. Potential limitations on the type of investment property you can purchase, such as restrictions on the condition of the property or its location.

FHA loan for investment property: FAQs

Thinking about using an FHA loan to buy an investment property? Here are some of the questions we’re hearing the most from folks like you.

What is an FHA streamline refinance?

An FHA streamline refinance is a simplified process for homeowners with existing FHA mortgages to lower their monthly payments. It allows you to refinance your current FHA loan into a new one without going through the usual underwriting process, making it quicker and easier.

This type of refinancing does not require a credit check or income verification, helping you save time and money on your mortgage. 

Additionally, an FHA streamline refinance typically doesn’t require an appraisal, which means you may be able to refinance even if your home’s value has declined since you bought it.

Can I buy an investment property with an FHA loan?

If you’re considering using an FHA loan to buy an investment property, it’s important to know that this type of loan is typically intended for primary residences. 

However, if you’re looking to purchase a multi-family property and live in one of the units, you may be able to use an FHA loan for this purpose.

Keep in mind that there are specific occupancy requirements that must be met when using an FHA loan for a multi-family property.

What are the different types of FHA loans?

If you’re considering applying for an FHA loan, it’s essential to understand the different types available. The Federal Housing Administration offers various loan programs tailored to meet the diverse needs of prospective homebuyers.

These include fixed-rate mortgages, adjustable-rate mortgages, and specialized loans such as 203(b) and 203(k) for purchasing or renovating a home. Understanding the variety of FHA loan options can help you make an informed decision that aligns with your specific homeownership goals.

Should I apply for an FHA loan for an investment property?

At the end of the day, only you know what is best for your unique circumstances. If you’re interested in this type of financial vehicle, consider applying for an FHA loan for an investment property if you meet the occupancy requirements and seek competitive interest rates

Remember that FHA loans are only available for primary residences, but buying a multi-family property can provide rental income to help with mortgage payments.

Keep in mind, however, that there are limitations on the number of units and strict guidelines to qualify for the loan. It’s essential to weigh the benefits and drawbacks carefully before deciding if an FHA loan is right for your investment property endeavor.

For these reasons, you’re best off partnering with a mortgage expert who can walk you through the process.

Mortgage Advisor Chalkboard Sign

FHA loan for an investment property: More FAQs

1. Can I use an FHA loan to buy an investment property?

Yes, you can use an FHA loan to buy a property intended for investment purposes with one major caveat: You have to live on-premises.

2. Is it possible to live in one unit of a multi-family property and rent out the others with an FHA loan?

Yes, you can live in one unit and rent out the other units if you buy a multi-family property with an FHA loan.

3. Can I switch my primary residence to a rental property if I have an FHA loan?

Yes, but only after living in your home as your primary residence for at least one year.

4. Are there any exceptions that allow using an FHA loan for investing?

No, there are no exceptions; FHA loans are strictly for primary residences only.

5. What happens if I use an FHA loan and then decide to turn my house into a rental property later?

You must occupy the home as your primary residence for at least 12 months before renting it out; otherwise, it could be considered fraud.

As you can see, there are a lot of nuances to consider when it comes to using FHA loans for investment properties. By partnering with a mortgage expert, you can learn more about the ins and outs of this method of financing and determine whether it’s right for you.


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