FHA Loan for Duplex - Stuck for 3 Years?

Question

Hello! My Husband and I are looking to buy our first duplex this summer. We've been approved for an FHA loan.

We read this on BiggerPockets recently regarding an FHA loan and living in the duplex you buy with it:

"After a year of living in the home, you can legally move out and rent the property. There are no laws against doing this. However, unless you own 30% of the property at the time you rent it out, you will not be able to get another loan until you have two years of landlord experience with that home on your taxes. Going this route means you will have to wait 3 years to buy the second property. Most new investors don’t know this going in and find out too late."

Does this mean you can't get another "multi-unit" loan within 3 years? Does this include a 1-unit loan?

Say after one/two years we have enough saved, and want to buy a little single family home for ourselves, and rent out the side of the duplex we had just lived in. Is is possible to get a conventional loan for a 1-unit home during those "3 years" the above paragraph mentions?

Please advise, thanks!

Sam

Andrew Postell · Answer

@Samantha Gagnon I'll try my best to keep this simple but do please forgive me if it gets confusing.

FHA Loans - you can actually move out at any time if you want. There is no "clause" that binds you to the home. However, if you need to get ANOTHER FHA loan then it will get tricky. So if you move out and purchase a home with a "conventional" loan (those are the loans governed by Fannie Mae and Freddie Mac) then there's no real problems at all. But if you need another FHA loan, then you will need to be aware of several things:

• If you are keeping that property as a rental, you will need 25% equity in it to count the rental income. That is, if you need the rental income to qualify for your next FHA loan. So if you need that rental income to qualify for your next FHA loan, you will have to pay down that mortgage to 75% in order to use it.
• You are not allowed to have 2 FHA loans UNLESS:Your family grew and you need more spaceYour job changed requiring your commute time to be longer...in general it's usually about 90 miles.
• Your family grew and you need more space
• Your job changed requiring your commute time to be longer...in general it's usually about 90 miles.

• Your family grew and you need more space
• Your job changed requiring your commute time to be longer...in general it's usually about 90 miles.

Again, these are ONLY if you need ANOTHER FHA loan.

If you are using a conventional loan, then the rental income can be used right away. It doesn't need to be on taxes or anything like that. Technically, FHA also doesn't need the income to be on taxes either...but they need the 25% equity to count it.

I know that information is a lot but there's one more wrench I have to throw in here...

OVERLAYS - Banks are actually allowed to put extra rules on top of the guidelines I just quoted above. So what the original post mentioned might actually be true at that bank. That's why investors try to encourage each other to use smaller to mid-sized lenders. Big lenders are out. People say "they are too strict"...and what they are referring to is that they have too many overlays.

The rules above are what you need to be aware of. Let me know if you have any other questions. Thanks!

Samantha Gagnon · Answer

That was extremely helpful - THANK YOU SO MUCH!!!

FHA Loan for Duplex - Stuck for 3 Years?

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