FHA 3.5% Down Requirements

[Tommy C.]

Hi all,

Does anyone know if you are allowed to finance the construction of a 4 Plex using an FHA loan and then use your own funds to build out the basement into an additional unit or two??

This would mean that the FHA only funds the construction of 4 units and I personally build (licensed contractor) or hire out the construction of additional units.

Thanks,

Tommy

[Chris Mason]

Originally posted by @Tommy C.:

@Tyler Bodi - the parcel that I'm looking at is zoned for planned development so if the city were to approve of more than 4 units I would be set on the zoning side. In regards to financing, I'm just unsure if FHA has restrictions against Accessory Dwelling Units (ADU) attached to an FHA financed 4plex.

2-4 unit properties with ADUs cannot be financed by Fannie, Freddie, FHA, etc.

You could buy a fourplex and slap an ADU on it. But when you go to sell or refi, your buyer or you would need to use a commercial mortgage for that. Only being able to get sub-optimal financing will generally harm values more than what you "get" in value from the 5th unit.

This is why you don't see a lot of 5-10ish unit properties. If you're going to take the bad financing, may as well shoot all the way up to 15 or 25 units.