FHA for 2nd or 3rd property?

Question

Chris Mason · Answer

FHA is the least investor friendly of all the standard options out there. So use it first, while you're just a normal retail buyer on paper, and not an investor.

Alas, in a hot market, FHA is also the most frowned upon by listing agents and sellers evaluating multiple offers.

Cara Lonsdale · Answer

FHA first.  UNLESS you can find a community home buyer program that does a grant for your down payment, or offers some type of downpayment assistance.  You can only claim first time home buyer once every 3 years (in most cases).  So, once you purchase a home, you lose your opportunities to utilize these types of programs for 3 years.

So, I would research down payment assistance programs FIRST.  Then FHA, then conventional.

And make sure that you are living in the properties that you commit to owning as an owner occupied.  Most require 12 months.  If down payment assistance is involved, sometimes it is longer.  So know your commitment levels upfront and be willing to abide.

Mark Smith · Answer

Hi @Jason Reinen.  I think the cleanest way to do this might be to do the FHA first, then purchase other properties conventionally after.  My thinking is that if you do the conventional(s) first, then you go and apply for FHA, they're going to ask why you're not living in one of the properties you already own since FHA mortgages are meant for first time home buyers and only for your primary residence.  Of course this may be a simple explanation to your lender, but why not avoid whatever hassle you can?  I believe you CAN get an FHA mortgage if you already have a conventional mortgage on another property that you are not living in, but there would probably be more red tape.  FHA is really trying to crack down on people trying to abuse the system to grow their portfolio.  I'm not saying that's what you'd be doing, I'm just making you aware of a potential headache it could cause you.

Also keep in mind that after you purchase a multifamily with an FHA you'll be considered an investor for your future purchases, and will probably need 20-25% down and 6 months of reserves (6 months worth of mortgage payments in the bank).  I'm going through this right now, and found out two weeks before closing that I needed $7,900 in reserves that I was unaware of at the start of the mortgage process.  Fun!

Good luck, it sounds like you're ready to go.  Be prepared to write a letter to your lender explaining why you're moving to the new place (closer to work, family, the new house is better for your family because...).  I'm sure they'll be asking.

Mark Smith · Answer

@Jeffrey Coleman, you cannot have two FHA mortgages at one time under normal circumstances.  You can purchase one primary residence with an FHA mortgage, and if you would like to do it again you must refinance into a conventional mortgage before another FHA is available to you.  One year only refers to how long you must occupy the residence yourself.

FHA for 2nd or 3rd property?

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