Does FHA Loan make sense for Investor?

Question

I have a quick question for which I couldn't find a clear answer after searching through the forums.

I own a primary and three rental properties. The primary is on a 10 year conventional mortgage (refinanced less than a year ago) .

The rentals are under various terms: (15 and 30 year fixed conventional), all rentals are currently occupied with 1-2 year leases.

The area where I live seems to be quite good for rentals. The last rental property I bought in March of this year had about 10 applicants within a week of it being on the market. Most applicants with excellent credit and rental history. I have now identified a few other properties in the same area/zip code, that I would like to buy as well, but I don't have the cash (20-25%) for the down payment.

Because my primary is in the same zip code (and I believe I could rent it just as fast as my last rental), I have been thinking about purchasing the new property using an FHA loan, where I can only put down about 5%. I would move into the new property and rent my primary. Then a couple of year from now, I could refinance other rentals and get to the 20% threshold to avoid the PMI going forward.

My questions are these:

+Can I still qualify for an FHA loan, although I already have multiple properties with conventional? I work and have steady income.

+Based on your own experiences, is my approach something you would recommend to get around cash issues? All my properties are breaking even. I recently refinanced them to take advantage of low interest rates and find the cash for my latest property I bought in March.

Sincerely.

Account Closed · Answer

I was just looking into pulling from retirement, my fine print said I'd have to repay the loan in full at the time I left the job. So that could be an option when you roll it over to your next job?

Some people have rules for cash reserves 3-6 for each unit. It's not sexy advice, but what about saving your employee income up for a year?

David Krulac · Answer

Henri Meli

Yes and Yes.

FHA is for owner occupied only, you can buy 1-4 units, as long as you occupy 1.  Down payment is 3.5% interest rates are low fixed rate for 30 years.  You will have to sign a document at settlement saying that you will occupy the property for at least 1 year.  After the time is up, you can rinse and repeat.

Henri Meli · Answer

Thanks to all. After talking to a few lenders, I have decided to forget about FHA and simply go conventional. I will put little money down and figure out ways to save more money.

When I told my lender that I was planning to rent my current primary and move to the new house, he asked me if I already had a renter lined up and I said I didn't. So he told me that I had to prove that I had more money on the side. I assume it is the usual stuff.

Has any of you had to rent their primary? Did you have to find a renter prior to  moving out?

Wayne Brooks · Answer

Yes, and the MIP for FHA is for the life of the loan, no matter how much you pay down the balance.

Ed Wood · Answer

With 5% down go conventional with MI it will be much less than FHA.  Altough FHA rates are much better than conventional.  You can easily compare the two by looking at the APR's on the quotes the lender gives you.  Lenders must include MI into the APR calculation so it's a good test of loans.

Henri Meli · Answer

Thanks all for the responses. I will try and schedule a meeting with a lender and go through my options. I have tried different ways to get some cash, but I haven't been able to.

Another option would be to pull out some money out of my retirement (401k) to use as down payment. I'm not yet very comfortable with that idea, especially since I'm preparing to switch jobs.

David Krulac · Answer

@Sean Kuhn

Everybody is complicated and always wants more documentation.  About half the properties we sell and almost all the owner occupants are FHA.  They dominate the the owner occupied market.  If you're selling end product to end users, then FHA is the majority lender for the home buyers.  If you don't deal with FHA you're probably throwing away 80% of the market buyers.

Elizabeth Colegrove · Answer

@Henri M

If all goes well we are hoping to move out of our current home this May and buy another personal property. Just as an FYI you can go conventional with only 3.5% down.

Sean Kuhn · Answer

FHA is extremely complicated. If you can jump through all the hoops, go for it. I always avoided it because my lenders say its such a headache.

Ali Boone · Answer

Best thing to do is talk to a lender who is investor-friendly. They can tell you for sure.