IS FHA LOAN WORTH IT?

When finding creative ways to fund an investment property, FHA has been one of the most popular among investors. Especially new investors because it allows them to start their portfolio at a low downpayment and low-interest rates. But what makes the FHA Loan popular, and is it worth getting it for your next investment property.

WHAT IS FHA LOAN:

The Federal Housing Administration (FHA) started in 1934 to help people become homeowners. FHA is a part of the Housing and Urban Development (HUD), so lenders can offer you a better deal. Therefore lenders are protected against losses and can offer more mortgages to homebuyers. They insure mortgages on single-family homes, multifamily properties, residential care facilities, and others in the US.

USING FHA LOAN TO YOUR FIRST INVESTMENT PROPERTY:

The FHA is intended for the purchase of a personal home. Meaning, owner-occupied is required. The purchased property will need to be your primary residence for 12 months, so if your goal is renting the property, you need to wait a year.

However, the FHA loan does allow you to purchase up to 4 units. As long as the owner-occupy is being meat, the owner can rent out the other units. Allowing you to house-hack your first investment property and start your real estate portfolio.

REQUIREMENTS :

Just like every other loan, there are requirements to meet and should be considered as an option if the following applies:

Credit Score: Most conventional loans want a credit score of 620 minimum, but with the FHA loan, you can be as low as 580 to qualify with a 3.5% down payment. However, if your credit score is lower than, 580 you may still be eligible but with a 10% down payment instead.

Insurances: Mortgage Insurance Premium (MIP) is required. This is an additional fee you make to protect the lenders' financial interest. Therefore you are required to pay two MIPs. One is during closing, and the other is annual, which is paid monthly.

• FHA Upfront MIP: 1.75 percent of the loan amount
• FHA Annual MIP: 0.45 percent to 1.05 percent of the loan amount each year, based on the amount borrowed, and down payment size.

Debt: The debt-to-income ratio should be <43%, which is common for most loans.

Additional: Must be purchased as borrower's primary residence and lived for at least 12 months. As well as proof of steady income.

PROS/CONS:

As mentioned there are many advantages to an FHA loan. Making this option very appealing for new investors. But you may not start profiting uniting you occupy the property for a year. In today's competitive market it is very difficult to get an accepted contract, so it may take time for you to see progress.

If you have any further questions, don't hesitate to connect with me here on BP. I'd be happy to help you on your journey.