FHA Loans: Do I Use It to Buy a Property Now vs. Buying a Property In a Year?
FHA Loans: Do I Use It to Buy a Property Now vs. Buying a Property In a Year?:
When you want to become an investor by purchasing additional homes to rent, you have many options to consider when finding funding to purchase those properties. One option is considering an FHA Loan to purchase investment properties now versus waiting to buy an investment home in the future.
In this post, we will examine both the pros and cons of taking an FHA loan to buy an investment property now versus waiting a year to save up your own money to purchase a property:
Pros of Using an FHA Loan to Purchase Investment Property:
The following are some pros to using an FHA loan to purchase a rental property and how you can do it:
- FHA loans only need a 3.5% down payment to purchase a property, making purchasing an investment property much more affordable for most average investors. You are likely to qualify for an FHA loan before a traditional loan.
- No income minimums have to be met to qualify for a loan.
- Only a 580 credit score is needed to qualify for an FHA loan to qualify for loan.
- Rentals can be anywhere between a single-family home and a 4-plex if purchased with an FHA loan.
- There is an additional loan amount allowed for each unit purchased past one individual residence.
- Income from the FHA loan on the first investment property you purchase can help you purchase your next investment property in the future.
- If you refinance your mortgage, you can often get rid of the mortgage insurance required to carry on a home purchased with an FHA loan to save money in the future.
- Closing costs can be bundled with your mortgage to require less cash for your initial purchase, which means that you can afford to buy an investment property sooner.
These are some great reasons to consider an FHA loan to purchase a rental property.
Cons of Using an FHA Loan to Purchase Investment Property:
The following are some cons to consider when using an FHA loan to purchase a rental property and how you can do it:
- You have to make the new property your primary residence for a minimum of 12 months (one year) before you can use it as a rental property for income purposes. (You would have to move into the new property you purchased and rent out your current residence if you get an FHA loan for your investment property).
- You will have to pay mortgage insurance on the property for the first 10 years unless you refinance to get rid of the mortgage insurance on the rental property you purchase.
- Unless you live under special circumstances, you will generally only be allowed to have one mortgage loan at a time, limiting how many rental properties you can have.
- The property you purchase is nationally capped in the US at $822,375, with additional allowances for each additional unit in the building you buy. Your multifamily properties are capped at 4 units per loan.
You have to consider these limits when using an FHA loan to purchase an investment property.
FHA loans can be a great way to help you get an investment property to help you increase your income. If you can get a multi-unit property, you will rent out more units and increase your income even faster, as you will have more than one tenant.