An FHA loan offers home buyers many advantages over traditional conventional mortgages, including lower (or no) down payments, generous credit score allowances and more. For this reason, many people may be interested in leveraging an FHA mortgage to purchase an investment property, whether a single family home they will rent out, a multi-unit building they will rent out or a vacation home that may be occasionally occupied by the buyer and occasionally occupied by (often weekly) renters.
So, can you take advantage of all the benefits that an FHA mortgage loan offers on a home you won’t occupy as a primary residence?
Unfortunately, generally no. FHA loan rules require the borrower to use the residence they are purchasing as their “primary residence”. To help prevent borrowers from circumventing this rule by declaring that multiple residences their “primary residence”, the FHA will generally only insure one mortgage loan for a principal or primary residence per individual borrower. The FHA expects you to use your home as your primary residence – as your home.
It is important to note that prospective borrowers who do not adhere to the FHA rules regarding primary residency occupancy may be considered to be acting in “bad faith” regarding the mortgage contract. In most mortgage contracting documents, bad faith is a reason to cancel or terminate the contract. Practically, that could mean losing your FHA loan and the benefits that that loan term has provided you.
What about multi-unit properties where you will live in one unit and rent the others?
This situation is likely to be an allowed exception to the FHA rules described above. As long as one unit will be your primary residence, properties containing multiple units are likely to be eligible for FHA mortgage loans.
Using FHA loans to finance investment property purchases can be difficult, and many transactions will be barred by FHA mortgage lending rules. In order to determine if the rental or investment property you have your eyes set on will be eligible for an FHA loan, contact a lender today who specializes in FHA lending and give them the unique facts of your situation and the property you are looking at. Even if you can’t qualify for an FHA loan for your investment property, a qualified and experienced lender will be able to advise you on what other options you may have and can help you to begin to build your real estate portfolio.