Securing an FHA (Federal Housing Administration) Loan could be an ideal strategy for your investment property.
The FHA is a program by the U.S. government that insures bank mortgages.
Good News About FHA Loans
The good news about FHA loans is that they usually come with a lower down payment, which is 3.5% in 2021, and less restrictive qualification requirements. This is great news because investors don’t need to come up with 20% in cash to put as a down payment on the house.
FHA loans also come with low, fixed interest rates for 30 years, which is 3.540% in 2021.
Bad News About FHA Financing
The downside to FHA backed loans is that the fees for these programs can be higher than others, you can experience a slower closing than some other options, and the deals are usually limited to one at a time.
Another big downside to real estate investors looking to secure an FHA loan is that they come with an additional payment in the form of Private Mortgage Insurance (PMI) when the down payment is less than 20%. If you put down a full 20% on the deal, you don’t pay this PMI, if not, you have to pay it.
This causes a significant increase in costs and thus, a reduction in potential positive cashflow for real estate investors.
What’s more, and this is the biggie for aggressive growth investors, FHA loans can only be used if you will live in the property. In other words, you can’t get an FHA loan for a pure investment property that you don’t plan to live in.
Still another downside to FHA loans is that you can only secure one at a time and major rehab properties don’t qualify.
When FHA Loans Work Best
Now, you can use an FHA loan to secure a duplex, triplex, or fourplex property as long as you will live in one of the units.
So, for real estate investment purposes, FHA loans are a go-to loan option for investors planning on buying a multi-unit property where they live in one unit and rent out or sell the other units.
Finding An FHA Loan
You can shop for an FHA loan at your local bank or credit union, as well as large mortgage lending companies.
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