Using an FHA Loan to Buy Multi-Family Homes
Are you planning to start the real estate investing journey? In this case you should consider financing your investment property purchase with an FHA. Although most FHA loans are used for single-family homes, there are a few options available for buying a multi-family house.
203b Loan Program
One type of loan that you can get from the FHA is a 203b loan. This is one most commonly used programs all over America. With this particular program, you can buy properties that have between one and four unit structures. In case you decide to buy a multi-family property such as a detached and semi-detached properties, row dwellings, townhouses, warrantable condominiums keep in mind that you must live in one of the units in order to qualify for this type of loan.
Through this program the FHA insurance protects a mortgage lender against the risk of default on mortgages to qualified buyers.
This program offers the easiest requirements to get financing: a down payment of only 3.5% of the lesser of the sales price or the appraised value; which the FHA allows to come from an approved source such as an employer, a relative, or a nonprofit or government agency that offers down payment assistance, if you intend to accept outside help for the loan.
You will be able to qualify for a 203b loan program with 3.5 percent of the home’s purchase price as down payment if your credit score is 580 or more. In case your credit scores between 500 and 579 you are still able to qualify with a 10 percent down payment.
According to FHA website
, the FHA 203(b) “may be used to purchase or refinance a new or existing one-to-four family home in both urban and rural areas including manufactured homes on permanent foundations. Typically, lenders offer terms at 15 or 30 years, and interest rates are negotiated between the borrower and lender.”
203k Loan Program
The FHA 203k loan program is another option that can be used if you plan to purchase a multi-family house that needs a lot of repairs before it is ready to be occupied. This loan, insured by the government, was designed to help with neighborhood revitalization and to expand home ownership opportunities. The FHA 203k loan program is allows you to buy a property and include in the loan the cost of the repairs and/or improvements.
There are two types of FHA 203k mortgage loans the Streamlined 203k and the standard 203K loan. The streamlined 203k is meant for less extensive, non-structural repairs such as painting a bathroom or kitchen remodeling where costs are limited to $35,000. The regular 203k that is given for those major repairs such as installing a new roof, moving walls, replacing plumbing, or anything else that might prevent you from living in the house while making the repairs.
Below is a list of repairs that are covered by the FHA 203k:
- bathroom and kitchen remodels
- new siding,
- additions to the home
- heating and air conditioning systems
There is no maximum limit with the standard 203k program however there is a $5,000 loan size minimum.
As you can see there are different options available that you should take into consideration when purchasing a multi-family home. Carefully explore all your options and ask your mortgage lender about the available FHA loans before starting the house hunting adventure.