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Old 07-19-2010, 05:28 PM
 
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What down payment does FHA require on a mortgage that will be used to purchase an investment property (to be rented)?
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Old 07-19-2010, 05:33 PM
 
Location: Union County
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The idea that FHA could be used for an investment property makes me cringe... It goes against the very heart of the program.

I just assumed it wasn't possible. Wow.
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Old 07-19-2010, 06:05 PM
 
Location: Laguna Niguel, CA
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You can buy 2-4 unit properties with FHA, live in one of the units and rent the others out. But can't buy a property and rent all units out.

For 2-unit properties it's pretty much like a 1-unit, except depending on the lender the other units income may or may not be able to be used to qualify unless you have a 2-year landlord history (tax returns). For 3-4 units they must pass a self-sufficiency test, meaning the rent from a market rent analysis (form the appraiser does) of all units (even the occupied unit) minus the vacancy & maintenance factor (varies depending on what market the home is in, typically it's 15%), must be equal to or less than the monthly PITI payment on the home. This may mean just 3.5% down is required, but I've seen required down payments up to 50%. Qualifying using that rental income will vary just like with a 2 unit, depends on the lender.
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Old 07-19-2010, 06:25 PM
 
704 posts, read 1,754,528 times
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Quote:
Originally Posted by ShanetheMortgageMan View Post
You can buy 2-4 unit properties with FHA, live in one of the units and rent the others out. But can't buy a property and rent all units out.

For 2-unit properties it's pretty much like a 1-unit, except depending on the lender the other units income may or may not be able to be used to qualify unless you have a 2-year landlord history (tax returns). For 3-4 units they must pass a self-sufficiency test, meaning the rent from a market rent analysis (form the appraiser does) of all units (even the occupied unit) minus the vacancy & maintenance factor (varies depending on what market the home is in, typically it's 15%), must be equal to or less than the monthly PITI payment on the home. This may mean just 3.5% down is required, but I've seen required down payments up to 50%. Qualifying using that rental income will vary just like with a 2 unit, depends on the lender.
The buyers of my house had an FHA loan....and that was 5 times the size of my FHA loan.....so size of loan seems not to matter.

I talked to my lender early today. He clearly understood that I would not be living in this 1 unit house, and it would be rented out. He did say the income from the property could not be counted toward my income in the loan approval. He said 25% down is required on an FHA loan used to buy a rental property.
It is already occupied, so I'd assume a tenant and lease agreement with them.
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Old 07-19-2010, 07:41 PM
 
Location: Laguna Niguel, CA
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He must've been mistaken, FHA doesn't buy/refi rental property. Conventional financing is what is used for rental property. 20% down is possible but 25% is recommended as it gives you a good discount on the rate.
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Old 07-20-2010, 06:17 AM
 
704 posts, read 1,754,528 times
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The next time we talk, I'll mention the info you have given me.
He may not have done alot of FHA investment loans. Or when he mentioned 25% down he might have been thinking "conventional."
The underwriters are still negatively debating capital gains.
And this is the lone lender out of 10, that had an application fee, and on the cost sheet he needed to put it somewhere, so he put the 495 on the appraisal line. I'll need my offer to the seller accepted, loan approved, and inspection done, so I can make the decision at that point, whether to continue. That $495 "application fee" is refundable if there is no appraisal done. And, he said we would talk, and agree, by phone to order the appraisal.
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Old 07-20-2010, 06:37 AM
 
Location: Union County
5,702 posts, read 8,135,958 times
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FHA loans are to provide assistance to those who could not normally afford a home due to a credit issue or having a low down payment - the intent from this government program is promoting home ownership. It's not for subsidizing landlords.

Based on additional reading, if you sign into a FHA loan to buy a property that you don't intend to use as your primary residence it could be considered loan fraud.
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Old 07-20-2010, 08:16 AM
 
Location: Plano, Texas
1,676 posts, read 6,333,376 times
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Quote:
Originally Posted by naeem5 View Post
The next time we talk, I'll mention the info you have given me.
He may not have done alot of FHA investment loans. Or when he mentioned 25% down he might have been thinking "conventional."
The underwriters are still negatively debating capital gains.
And this is the lone lender out of 10, that had an application fee, and on the cost sheet he needed to put it somewhere, so he put the 495 on the appraisal line. I'll need my offer to the seller accepted, loan approved, and inspection done, so I can make the decision at that point, whether to continue. That $495 "application fee" is refundable if there is no appraisal done. And, he said we would talk, and agree, by phone to order the appraisal.

You need to find a new loan officer. FHA does not do investment property purchases unless a multi unit as was pointed out above.
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Old 07-20-2010, 10:28 AM
 
5,264 posts, read 8,047,292 times
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Quote:
Originally Posted by naeem5 View Post
The next time we talk, I'll mention the info you have given me.
He may not have done alot of FHA investment loans. Or when he mentioned 25% down he might have been thinking "conventional."
The underwriters are still negatively debating capital gains.
And this is the lone lender out of 10, that had an application fee, and on the cost sheet he needed to put it somewhere, so he put the 495 on the appraisal line. I'll need my offer to the seller accepted, loan approved, and inspection done, so I can make the decision at that point, whether to continue. That $495 "application fee" is refundable if there is no appraisal done. And, he said we would talk, and agree, by phone to order the appraisal.
Your loan cannot be approved without the appraisal.
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