Everything You Need to Know About the FHA When Buying Multi-Family Property
Interested in investing in a multi-family property, but not sure how you can swing it financially? Currently, one of the best ways to make this interest a reality is through the FHA. The FHA is the Federal Housing Association, and it insures not just mortgages for single-family homes, but also multi-family properties. Currently, the FHA is the largest insurer for all residential properties – both single and multi-family – in the world.
Investing in a multi-family property actually brings a number of benefits to both your current finances, but also your long-term investments. There are guidelines and regulations to the FHA loan option, including finding a lender that’s FHA-approved. Beyond that, however, the insurance provided by the FHA is a great way to go when buying properties. First, we’ll discuss reasons why it’s a good idea to buy a multi-family property with the FHA. Then, we’ll discuss how to make it possible.
Why FHA Loans are Good for Buying Multi-Family Properties:
1. High Seller’s Assist
Typically, as an investor, you will have to make a down payment of 20 – 30% when purchasing a multi-family property. When you make the investment with the FHA, you’re only required to put down 3.5%. An FHA loan can assist you with 6% down payment as well. This option allows investors with little cash, to make a big investment. You all of a sudden don’t have to put all of your money towards a down payment, but rather into other avenues with the purchase. You are set up for more success when you choose to use a FHA loan for financing.
2. More Financial Stability for You
There’s a lot of financial stability for you when you make the multi-family purchase through an FHA loan, even apart from the down payment assist. There’s typically a low-risk, high return outcome. You can live in the multi-family property while you rent out the units. If your rent price is right, you could even live in the facility rent-free. Then, once you move out or move on to your next investment, you have that additional rent check that will only add to your cash flow.
Rentals, especially multi-family rentals, establish direct access to consistent cash flow. With the FHA loan, you’re putting less money down at first, and still receiving the rental checks each month. This combination puts you in a really stable place.
3. Your Record Doesn’t Have to be Perfect
Typically, anyone with a credit score that’s less than 500 is ineligible for an FHA loan. However, the other requirements are more flexible and accommodating than you may think. Since there’s less money required for a down payment, your bank account doesn’t have to be extremely high either. The FHA loan insurance options do help first time investors make the purchase they otherwise may not be able to afford or hold on to.
4. You Can Get Assistance for Repairs and Other Additional Costs
When you have an FHA loan, you are able to receive financing for home improvements through different programs and loans. The most common would be the Energy Efficient Mortgage and the FHA 203(k) loan. The Energy Efficient Mortgage program helps you to improve the efficiency of your property, and in turn, lowering your utility costs. If you qualify for the FHA 203(k) loan, you can receive up to $25,000 in addition to the initial property cost, to improve the property as needed.
So, how do you get a loan through the FHA? The first step, as mentioned, is to find a FHA-approved lender. No worries about finding an approved lender, there are countless available lenders who are connected with the FHA.
A Few Technical Details about FHA Loans
The Requirements to Qualify:
There’s various requirements in a form of a checklist found on the FHA’s website. It may take some time to gather all of the information, but none of it is too surprising. The information is similar for when you apply for a loan through a bank or credit union. Here’s just a glance of a few of the requirements:
- Employer information
- Information on all real estate properties you own
- Pertinent information from all checking and saving accounts
- Personal tax return information, and current income statements
You can review the rest of the list by visiting FHA.com. In addition to paperwork requirements, there’s also a closing checklist you have to complete in order to file for an FHA loan. This list includes:
- Valid identification for every party involved in the purchase
- Policy of title insurance showing no previous claims or issues with the property
- Homeowner’s insurance for the property, at the time of purchase
- Closing funds need to be presented as a cashier’s check or wire transfer
Loan Limitations & Guidelines:
The loan limitations, also known as the lending limits, change on a yearly basis, as everything is reevaluated. The other factors that have a role in the limitations are at both the state and county levels. You’re able to find out your exact location’s available loan amount on the FHA’s website.
Depending on the length of the loan, and the amount of money you’re borrowing, the insurance rates also vary. There are two premiums you pay during the length of the loan: an initial premium, and an annual premium. The annual premium is separated into monthly payments. Both premiums are subject to the terms of the lender and the FHA, based on the cost of the property.
Investing in a multi-family property provides you with a number of benefits – including consistent cash flow. When your loan is through the FHA, you’re able to pay off your debt at a better rate. Even more than that, you don’t have to have all the money right away for a substantial down payment, either. If you’re looking to make an investment with a multi-family property, but not sure if you want to have your cash tied up due to a large down payment and monthly mortgage payments, an FHA loan is your best approach to increasing your overall assets and investment values.