One of the most popular investments that people would like to have is real estate. However, most people have a hard time engaging in this kind of investment strategy because of budget challenges. So, some consider applying for a loan to make their investment plans possible.
If you plan to invest in real estate, did you know that you can use FHA loans to purchase your investment property instead of conventional loans? Many people think that FHA loans are only for buying a personal house or single-family, owner-occupied home. However, FHA loans are also helpful for real estate investors. To give you an idea, here’s a guide on how you can invest in real estate using FHA Loans:
What Exactly Is FHA Loan?
First off, let’s define what FHA loans are. Unlike conventional loans that are backed up by private entities, FHA loans’ mortgages are backed up by the government and insured by the Federal Housing Administration (FHA). This statement just means that the FHA can provide mortgage insurance to the lender if the borrower can’t repay the loan.
FHA loans also require low down payments and closing costs compared to conventional loans, making it easier for borrowers. Still, the FHA sets a particular standard for loans that will receive their backing. As a borrower, you need to meet these standards first before the lender can write you a loan and receive mortgage insurance from the FHA.
How Can You Use FHA Loans to Purchase Your Investment Property?
If you’re eager to know how to use FHA loans to purchase an investment property, it’s quite simple; you just need to buy a single-family home and turn the house into an income-generating property by placing it on the rental market. Since FHA loans are commonly used to buy a single-family home unit, essentially, you’re still making use of the loan’s primary purpose. However, you need to meet the requirement of being in the property you’ve bought and make it your primary residence for at least 12 months first before you can transform it into a rental property.
If you don’t like to wait for a year and want to have an instant rental property, you can purchase a multi-unit property, such as a duplex instead. With a duplex, you can have up to four units. If you have four units, you can occupy one unit to abide by the owner-occupancy requirements, while the other three can serve as your income-generating unit.
Why Should You Choose FHA Loans?
As mentioned, FHA loans only require low down payment costs, unlike conventional loans. Moreover, you can have a high chance of getting approved even if you have a low credit score. You’ll be luckier if you have the appropriate credit score because you can benefit from securing financing for an investment property with as low as a 3.5% down payment. This number is relatively low compared to the usual 10% to 20% down payment.
There’s no need to limit yourself in engaging in a real estate investment because FHA loans can be your way to make this possible. FHA loans are easier, cheaper, and more convenient, perfect for people with low credit scores. Just find the right team to assist you with the process so you can jumpstart your real estate investment now.
If you are looking for a good mortgage broker in Georgia and Florida to assist you with your FHA loans application, My Lending Pal has got you covered! We can help you get pre-approved and qualify for the best terms to speed you on the way to homeownership and real estate investment. Get in touch with us today!