Real Estate Investors Are Using FHA Loans For Apartments

It may surprise you to discover that real estate investors often seek FHA loans for apartments they plan to rent out. Initially, this may sound less than legal, but the fact of the matter is that it is perfectly sound. In situations where investors plan to live in one of the units of their multifamily dwellings, it is perfectly reasonable that they would seek such financing to make the deal work.

Benefits to the Investor 

The benefits to the investor should be fairly obvious. Combining living expenses with income potential helps to simplify his purchase and turn an investment in his comfort into a potential financial boon as well. Compounding his returns as he develops units for rent, the investor can offset his own living expenses and build investment equity as well.

Benefits to the Community 

A property that is owned and leased by a resident is likely to be better cared for than one that has an absentee manager. With constant engagement between renters and the on-site landlord, there is better opportunity to make renter needs known and to offer remedy for issues. Meanwhile, investors who are willing to share space in their buildings provide increased housing possibilities to alleviate strain on the neighborhood.

Investment Property Requirements 

FHA loans can be acquired for properties with 1-4 units, making them perfectly reasonable for multifamily investment properties. Generally, though, these loans are reserved for those people actually planning to live in the property being purchased. This protects the loans from being abused as strictly commercial loans.

Additionally, FHA loans are offered only one at a time, so real estate investors cannot expect to have several to increase their holdings.

Mortgage Insurance

One drawback to FHA loans is that they require mortgage insurance, and this can be quite costly. This insurance must be purchased as an upfront premium to be bundled in to the loan and an annual mortgage premium. This often turns off potential applicants, but those who recognize the potential FHA loans represent for helping them to afford their first home are ready to add this expense willingly. Furthermore, with so much at stake, it makes perfect sense that the federal government would work diligently to protect their investment from the dangers of defaulted loans.

Many first-time buyers have found that FHA loans were the golden key to their dreams. Understanding the application process and the requirements can help you to cross the threshold happily and easily.