FHA vs Conventional

Private Lending & Conventional Mortgage Advice
12yFollow

FHA vs Conventional

Account Closed
Chicago, IL · Member since 2013 · 3 posts · 1 vote

I understand that you are only allowed to have one FHA mortgage open at a time, in order to prevent the use of FHA loans for investment properties. I also know that FHA loans are mainly meant for first time home buyers. My question then is, is it possible to buya property now with an FHA loan, and then a few years down the road, refinance that loan into a conventional loan (turning that property into an investment property), and then take out a new FHA loan on a new primary residence?

1Reply
16 views

Most Popular Reply

Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
12y

FHA usually has a an "ownership affidavit" you sign where you tend to occupy the property.

People down the road refi out of things all the time. You would need to talk to a bank or mortgage broker when the time comes about your specific situation.

FHA carries high permanent insurance with it now. I assume you are trying to go FHA because of the low down payment of 3.5%. If that is the case you could look at owning investment property today by purchasing a 4 unit property and living in one of the units.

No legal advice.

Podcast Guest on Show #47
NNN Invest53 Reviews
WebsiteView Page
1Reply
See this reply in the discussion

14 Replies

Jump to latestLatest
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    12y

    FHA usually has a an "ownership affidavit" you sign where you tend to occupy the property.

    People down the road refi out of things all the time. You would need to talk to a bank or mortgage broker when the time comes about your specific situation.

    FHA carries high permanent insurance with it now. I assume you are trying to go FHA because of the low down payment of 3.5%. If that is the case you could look at owning investment property today by purchasing a 4 unit property and living in one of the units.

    No legal advice.

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    1Reply
  • Account Closed
    OP
    Chicago, IL · Member since 2013 · 3 posts · 1 vote
    12y

    Thanks for the reply! Yes, I am looking to do FHA because I only have enough cash for about 15% down payment (i understand that conventional requires 25% for investment properties, even if owner-occupied.

    I guess my main concern is whether or not I would be able to obtain a new FHA loan in a few years (after the 1st one is refinanced to conventional) since I would really not be a "first time home buyer" anymore.

    0Reply
  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    12y

    FHA is not just for first time home buyers, but many states have programs that help first time home buyers fund even the 3.5% down after they've taken a home buyer course and followed some other guidelines, so worth a look into special programs if you're considering FHA as a first time home buyer. The fees are higher now and, like Joel said, insurance is for the life of the loan. My son bought his first home using Virginia's VHDA program, and he only had to come up with like $11 at closing, so he could save the down payment he had towards another property later.

    1Reply
  • Ralph E.
    Lender · Sacramento, CA · Member since 2013 · 78 posts · 44 votes
    12y

    FHA fees are higher and insurance is permanent but you can reused over again if you refi your subject property to conventional. Also FHA 203K program is for purchase rehab if you're buying owner occupied.

    QM or Qualified Mortgage legislation goes into effect Jan 1, 2014 min Fannie/Freddie conventional loans will be 95% LTV.

    There is a conventional purchase/rehab loan for investors at 75% LTV of as completed value.

    .

    1Reply
  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    12y

    The answer is...... YES YES YES! ...most likely! (though check with an FHA lender)

    From FAQ on the HUD website:

    "To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA generally will not insure more than one mortgage for any borrower (transactions in which an existing FHA mortgage is paid off and another FHA mortgage is acquired are acceptable)" (italics added by me)

    In your case, the refinance you plan on doing will pay off the "existing FHA mortgage", then a new FHA mortgage is acceptable.

    The caveat..

    "FHA will not insure a mortgage if FHA concludes that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be encumbered will be the only one owned using FHA mortgage insurance."

    http://portalapps.hud.gov/FHAFAQ/controllerServlet?method=showPopup&faqId=1-6KT-879

    You really have to talk to the loan agent/broker who is doing your deal to get the specifics, but HUD's FAQ states that it is acceptable. Don't know how exactly they would go about assessing if it is being used "as a vehicle for obtaining investment properties." It's a great program though!! 1 only myself! Good luck!!

    1Reply
  • Ed Wood
    Real Estate Broker · Orange, CA · Member since 2008 · 380 posts · 87 votes
    12y

    It's a very common myth that FHA is only allowed to be used once or is only for first time home buyers. Anyone can go FHA if your financing a owner occupied property and you currently do not have a FHA loan.

    If you have 15% down for a owner occupied property you may want to go with conventional financing at 5,10, or 15% down with regular mortgage insurance. It's MUCH less expensive than FHA.

    1Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    12y

    As Ed said, you can now do conventional loans with 5% down.

    0Reply
  • Steven J.
    Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
    12y

    I'm a bit confused. I've heard in the past that you can indeed use the FHA over and over again because, in technicallity, you're a first time home buyer x years after your last purchase or something. Or do you just have to pay off that FHA loan and you're good to go on another right away?

    0Reply
  • Ed Wood
    Real Estate Broker · Orange, CA · Member since 2008 · 380 posts · 87 votes
    12y

    @Steven Johnson

    You are correct you can use FHA over and over again. You can refinance a FHA into a FHA you can refinance a conventinal into a FHA you can sell a home that you have a FHA loan on and buy another home with a FHA loan the rules are it must be owner occupied AND you're allowed one FHA loan at a time.

    You can not buy a home FHA them 4 years later buy another home FHA then 2 years later buy another home FHA and have 3 homes with FHA loans. You would have to refinance out of the FHA loans or sell the the homes to do the next FHA loan.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    12y

    With conventional the more you put down closer to the 20% number the insurance charge is less and less as risk decreases for the lender.

    So if you put 5% down for conventional as homebuyer the rate is a little higher and the insurance payment is higher to compensate for risk.

    A mortgage broker or a direct bank will know all the minute details for your situation.

    Podcast Guest on Show #47
    NNN Invest53 Reviews
    WebsiteView Page
    0Reply
  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    12y

    @Joel Owens @Jon Klaus @Ed Wood

    Have you guys heard of the 5 or 10% down conventional on 2-4 unit properties, owner-occupied? Or is just for SFH?

    @Steven J. 1 at a time, as others said, except under very specific circumstances, as outlined in my post above, with the link to HUD.

    0Reply
  • Jerardo Linares
    Real Estate Broker · Los Angeles, CA · Member since 2013 · 9 posts · 4 votes
    12y

    @J Martin Wells Fargo has a 2% down conventional for 1-2 units. But there are some restrictions on the income.

    0Reply
  • Matt Pitschman
    Monroeville, PA · Member since 2014 · 23 posts · 2 votes
    12y

    Do loans exist for non owner occupied properties with <10% down?

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free