The Federal Housing Administration (FHA) loan program is a popular option for those seeking affordable financing for their real estate purchases. As such, it is important for potential borrowers to understand the rules and regulations that come with taking out an FHA loan when buying a multi-unit property.
Part One of this article focused on the FHA’s rules for building structures that would be eligible for FHA financing. In Part Two of this article, we are looking into other requirements that must be met if you are purchasing a multi-unit property using an FHA loan.
The first requirement is that the property must meet the minimum occupancy requirement. This means that the property must be “reasonably expected” to be occupied on a full-time basis by 1 or more individuals. This could include owner occupiers, tenants, or both; depending on the situation.
The second requirement is that of creditworthiness. FHA loans are not backed by the borrower’s personal credit, but rather on the overall strength of the investment property. This means that the borrower must have a strong track record of paying rent and other expenses on time in order to qualify. Additionally, the borrower must have low debt-to-income ratios.
The third requirement is that of reserves. FHA lenders often require borrowers to have a certain number of months worth of payments in reserve to cover unexpected expenses that arise with owning an investment property. These reserves are typically 4-6 months worth of mortgage payments.
The fourth requirement is that of insurance coverage. FHA lenders will require buyers to carry sufficient property insurance on the property they are buying, as well as liability insurance to cover any damage that may occur to other units or people on the property.
The fifth requirement is that of inspections. FHA lenders often require a physical inspection of the property before they will fund a loan. This inspection ensures that the property meets local building codes and is safe to occupy; as well as looking for any deficiencies that may impact the value of the property.
The sixth requirement is that of appraisals. FHA loans also require an appraisal of the property to ensure that the purchase price is in line with the current market value. This appraisal helps protect lenders from lending too much money on a property that may not be worth much.
In conclusion, these are just some of the FHA loan requirements for multi-unit properties. It is important for potential borrowers to understand all of the rules and regulations before taking out an FHA loan for a multi-unit property as failure to comply can result in a rejected loan. Additionally, many of these requirements may vary from lender to lender so it is important for borrowers to ask questions before committing to a loan.
The Federal Housing Administration (FHA) loan program is a great option for potential real estate purchasers as it provides access to lower down payments and easier qualification standards than traditional loans. However, there are several requirements that must be met in order to qualify for an FHA loan, especially for multi-unit properties. These requirements include meeting the minimum occupancy requirement, having a good credit history, maintaining sufficient reserves, carrying adequate insurance, undergoing inspections, and receiving an appraisal. Understanding and fulfilling these requirements is essential for any borrower looking to take out an FHA loan on a multi-unit property.
This article was contributed on Oct 21, 2023
