Is using an FHA loan for investing ethical?

Question

Hello,

Is using FHA loans or other low income/low downpayment loans as an investment strategy unethical? I spoke to a number of different lenders about my options to acquire financing as a college student, and a few times when I've mention looking into using an FHA loan or other FTHB loans to purchase a rental property, I am told that those loans are designed to help those who cannot necessarily afford a conventional loan and should not be used to "build a real estate empire." To clarify, I live in a relatively expensive market and I would plan to use an FHA loan to live in a single family for a year then rent it out after and refinance when I have the money when I graduate. From what it seems from the books and podcasts I've learned from, FHA loans are a popular method to invest in real estate for owner occupied properties. By using an FHA loan to purchase my first property and refinance when I graduate, am I unethically "bending the rules" to accelerate my wealth growth? Are there any rules against this? Should I approach lenders differently? I appreciate any input. Thank you.

Joseph Firmin · Answer

Ethics is subjective and personal. Compliance is typically black and white regulation (and then gray once attorneys are involved). Operating within the law and doing so literally is legal. The spirit of the law is another and up for interpretation, if you abuse it, then a court may find you in violation of the spirit of that law.

At the end of they day, do what you feel is right and you wouldn't mind your family reading about in the newspaper.

At the end of they day, do what you feel is right and you wouldn't mind your family reading about in the newspaper.

Jon A. · Answer

There are so many threads on here about this subject. As long as you plan to occupy the home for the first year it is not unethical. People buy homes and plans change all the time. They are not forced to sell the home. Many people will think fraud when they hear your plan but if you occupy for one year without the intentions of renting it out during that time after you purchase then this is a great plan. Better yet, occupy it for two years and then you rent it for three and sell later without paying the capital gains tax.

Andrew Postell · Answer

@Kyle Marsh you can 100%, absolutely purchase a primary home with an FHA loan. They are best used for 2-4 unit properties really. If you have good credit and a good job then a conventional loan is often better for a Single Family Home but if someone is trying to "steer" you into a specific loan type - THAT is unethical and against the law entirely. Steering someone to a specific loan because it makes your company more money or any reason that benefits the lender over the borrower is a big "no no". Go to a different lender immediately. It is your right to use FHA money, as long as you qualify and obey their rules of course. You will sign that you will occupy within 60 days of closing and occupy the property for 12 months. Hope this helps in some way.

Stephanie P. · Answer

@Kyle Marsh

It's not unethical in the least. You should be trying to maximize your buying power with as little cash outlay as possible; particularly if you can find a property that has multiple units. More power to you.

Stephanie

David M. · Answer

@Kyle Marsh

I don't think its necessarily unethical... Its not what was intended for the FHA program, but alternative uses for stuff always come around..

Also, what have the lenders told you about other loan products? You don't have to use a FHA loan. Conventional loans routinely go down as far as 5% and sometimes 3% under certain first time buyer's programs. YOU really shouldn't be looking at the loan product as much as the lender should be helping you to find the correct loan product.

FHA loans are "popular" because the people who don't have stellar credit or much money use it. You don't hear about the "regular" investors who just use 20% down conventional loans because its run-of-the-mill and it requires a certain amount of means --- which is sort of the point of "investing" vs. a "job." Same goes for all the other sales pitch type marketing about alternative funding streams.

As a college student I realize you don't have a lot nor much of a credit history. But, I wanted to put that out there to make sure you have some perspective on what you are seeing. Good luck.

Is using an FHA loan for investing ethical?

Is using an FHA loan for investing ethical?

Most Popular Reply

5 Replies