One of the most challenging aspects for aspiring real estate investors is merely getting started. Buying a rental property through conventional loans with 20% down payments can cause unnecessary delays in the growth of your rental portfolio.
Smart investors use leverage and every possible advantage to acquire their rental properties. One fantastic strategy, when used legally, is to buy a multi-family home with an FHA loan.
Brett Lee explains how buying a duplex with FHA financing can be an ideal first investment.
Most people wanting to get into investing start by buying a house with an owner occupied loan (FHA, VA Conventional). Owner occupied loans are cheaper because they have lower interest rates and much lower down payments than investment loans. It’s also the most affordable way to go when you have little cash. Keep in mind, you have to occupy the home for at least a year with an owner occupied loan, or you’ll be committing fraud.
First things first, duplexes are almost always cheaper and bring in more rental income than single family homes of the same size. If you plan on investing, it’s a good idea to start with a duplex anyway.
If you buy a duplex with an FHA loan, you can buy more houses, use rental income from the other side when you buy it and after two years of living there, you meet the owner occupied requirement and the two years’ experience. If the rental income after you move out is 25% more than the mortgage, you will be in a much better position for buying the next one. Read more…
Greg DePersio notes that buying your rental the right way can provide a free place for you to live.
Another way to use an FHA loan to buy an income property is to purchase a duplex, or some other sort of residence with distinct units. The owner lives in one unit, making it an owner-occupied property and thus FHA-eligible, and he rents out the other unit for income. A savvy investor in a hot rental market sometimes earns enough income using this method to live in the home for free. FHA lends up to 96.5% of the appraised duplex value, meaning the purchaser can put as little as 3.5% down. Via investopedia.com
You can start investing with a much smaller down payment and a low credit score.
Real estate investors in most cases need at least 25% of the purchase price as a down payment and possibly 35%. But investors willing to occupy one unit of a duplex or similar small multifamily property can get Federal Housing Administration insured loans for as little as 3.5% down. FHA loans are also suitable for borrowers with lower credit scores, and people just getting started in real estate investing.
In addition to accepting lower down payments, FHA will lend to borrowers with less- perfect credit. “FHA only requires a down payment of 3.5% for owner-occupied properties with credit scores down to 580,” says Erin Lantz, vice president of mortgage with Seattle-based Zillow. “With 10% down, FHA will insure loans for borrowers with credit scores as low as 500.” Conventional lenders typically require, along with much larger down payments, a minimum score of 620, Lantz says. read more at thestreet.com
Of course, there are many caveats and requirements for securing an FHA loan, but if you follow the process, the results can be truly rewarding.
FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal.
What does FHA have for you? Need advice? Need help with your downpayment? read more at hud.gov