FHA 3 to 4 Unit Financing with only 3.5 Down – How to Buy 3.50% 3 to 4 Unit Properties

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Federal Housing Administration (FHA) loans are government-assisted mortgages that were established to help lower-income borrowers obtain a mortgage who otherwise may not qualify. If you’re wondering what you need for a down payment on an FHA loan, the answer is as low as 3.5% of the purchase price – assuming you have at least a 580 credit score. Though the FHA allows an exception for borrowers who have established no credit, you’ll need to find a lender willing to take on the extra work involved in the underwriting process. 

The most substantial benefit of purchasing a multi-unit property with FHA is the low down payment of 3.5%. That is because as a general rule, other loan programs want to see a larger down payment for this type of property. Another advantage is that by acquiring a multi-unit property will help compensate for your mortgage payments by renting out other units that you are not occupying. 

Financing a Multi-Unit Property with an FHA Home Loan at 3.50% 

FHA loans can be used to finance one-to-four unit residential properties. These include condominiums, manufactured homes, mobile homes that stand on a permanent foundation, as well as multi-family properties. This program cannot be used to purchase an investment property, and you cannot count on future rent payments to be considered part of your income. 

For loans covering three-to-four unit properties, the rules become slightly complicated. While you can still benefit from the 3.5% down payment, there are some additional restrictions that apply to triplex and quad residencies. First, you must prove you will use one of the units as your primary residence. You can only use 75% of the income received from rent to meet the debt-to-income qualification. You will also need to ensure that architects designed the property for residential multi-unit use. 

FHA Home Loan Perks for Multi-Unit Properties

Another added benefit of purchasing a multi-unit property with FHA is that you, as a homeowner, get the chance to become a landlord. Purchasing this type of property will help offset mortgage payments by renting out the other units that you are not occupying. Rental payments accepted by tenants can be used to decrease mortgage payments or to reduce monthly out-of-pocket costs. 

Ultimately, the FHA wants to guarantee that the property you are purchasing can pay for itself. To pass the self-sufficiency test, you’ll need to prove that 75% of the rental income you’re likely to receive, will exceed the full monthly mortgage payment. It’s important to note that even if you pass the self-sufficiency test, you still need to qualify for the loan using traditional income and credit criteria. 

If you have questions or concerns about financing a multi-unit property with an FHA loan at 3.5% down, contact us directly so we can assist.

Jay Boetscher "The Rehabman" has closed and funded over 2500 renovation transactions all over the country. Currently running the Renovation Financing Division for American Financial Network. Jay is licensed to close FHA, Conventional, and all types of renovation home loans in all fifty states.

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