Investing in real estate has been a popular option for many years, and the Federal Housing Administration (FHA) has made it easier for those looking to purchase an investment property. With FHA loans, you are able to purchase a property with a lower credit score than traditional loans and without a large down payment. However, there are several factors to consider before you take out an FHA loan for an investment property. This article will discuss what you need to know about FHA loans for investment properties.
First, it’s important to understand that FHA loans are designed to help those who are unable to qualify for traditional loans, such as those with low credit scores or those who don’t have a large down payment saved up. As such, the requirements for FHA loans are different than those for traditional mortgages and it’s important to understand these requirements before applying.
One of the most important requirements to consider is that monthly PMI payments are required. PMI, or Private Mortgage Insurance, is required for all FHA loans and is an added expense that must be paid each month. Additionally, FHA loans typically require a higher credit score minimum compared to traditional loans and cannot be used to purchase an investment property.
Another important factor to consider is that FHA loan limits are just one of the factors that influence the size of the loan you can receive. The loan limits are determined by the area you are looking to purchase in, and the borrower’s income. For example, in 2021, the FHA loan limits for single-unit properties range from $356,362 to $822,375.
When applying for an FHA loan, you will also need to provide proof of income and assets. This is because FHA loans are backed by the Federal Government and require borrowers to demonstrate they have the financial ability to make the payments associated with the loan. Additionally, you must be able to prove the property will be used as your primary residence and not as an investment property.
Finally, it’s important to note that while an additional 23.3 percent purchased an investment property with conventional financing, only 14 percent used an FHA loan. This is because FHA loans are typically only given to owner-occupied properties and not investment properties. However, if you are looking to purchase an investment property, you may be able to qualify for a second FHA mortgage if you’re using the loan to invest in a property.
In conclusion, FHA loans can be a great option for those who are unable to qualify for traditional loans, but it’s important to understand the requirements and limitations associated with them. Monthly PMI payments are required, as well as a higher credit score minimum compared to traditional loans. Additionally, FHA loans cannot be used to purchase an investment property and the loan limits are based on the area you are looking to purchase in and the borrower’s income. Finally, it’s important to note that while an additional 23.3 percent purchased an investment property with conventional financing, only 14 percent used an FHA loan.
