Did you know you could use FHA financing for multi-unit properties? It gives you the opportunity to invest in real estate without paying the higher investment loan rates and fees. The catch, however, is that you must live in one of the units. This makes it ‘owner-occupied,’ allowing you to rent out the other properties while using FHA financing.
What if you find a multi-unit property that needs renovations, though? You are still in luck. The FHA 203K rehab loan provides you with funds to buy the property and fix it up. It’s all done with one loan, while the funds to fix up the home are kept in an escrow account and disbursed accordingly. You must have a minimum of $5,000 in repairs to be done in order to qualify. You’ll also need a contractor willing to start the project within 30 days of closing in order to get started.
Keep reading to learn the additional requirements necessary for this loan program.
The Property Requirements for the FHA 203K Loan
First, you must make sure the property meets the FHA 203K loan requirements. Most notably, you can only use it on a 1-4 unit property. That means if you find a 5 or 6-unit property, it would not be eligible. However, there’s another catch. You can purchase the higher unit property and knock it down to a 4-unit. As long as the future value of the property is there and the lender agrees, you rehab the property to meet the FHA guidelines using FHA funds.
The property must also be residential and all units must be attached. If you will use the funds to add a unit to the property, it again must be an attached property. Lastly, in addition to the unit being residential, you must live in it as your owner-occupied property. If you own another property, you may not be eligible for the program.
Passing the Appraisal
Your multi-unit property will undergo an appraisal just like it would with any other government-backed loan, such as the VA or USDA loan. The appraiser will make sure the property meets the FHA guidelines, including that it is safe and sanitary. The appraiser…