Can You Buy a Multifamily Property With an FHA Loan?

Can You Buy a Multifamily Property With an FHA Loan?

Posted by on May 15, 2021

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FHA loans are a part of a federally backed program that enables people with a lower down-payment, credit issues, or other financial concerns to buy a home. A common question we often hear is, “can an FHA loan be used to buy a multi-family property?”

In short, the answer is yes, an FHA loan can be used to buy a multi-family property, but there are stipulations. 

What is an FHA Loan?

FHA loans are insured by the Federal Housing Administration and are issued by FHA-approved lenders. Most of these lenders are banks. The program was started to allow people with low-to-moderate incomes or financial issues to buy a home. 

The program allows the purchase of a home with lower down-payment requirements than many traditional loans, starting at just 3.5%. Banks make the determination if a buyer is qualified, but will take more of a risk on a loan because of the FHA’s backing. 

The FHA loan program is often thought of as a program for first-time homebuyers, but it can be used for repeat buyers if they meet the requirements. 

What is Considered a Multi-family Property?

A multi-family property is defined as a residence that can house more than one family. Multi-family homes include, among others: 

  • Apartment buildings
  • Condominiums
  • Duplexes 
  • Student housing 
  • Mixed-use properties 

So, can a buyer qualify for an FHA loan for a multi-family property?

Can You Use an FHA Loan to Buy a Multi-family Property?

The FHA loan program is for buyers purchasing a primary residence. So, if a buyer is planning on living in one unit, they might qualify for an FHA loan.

Here are some requirements for purchasing a multi-family property with an FHA loan: 

  • Borrower must live in the property for a minimum of one year as a primary residence. 
  • Must take occupancy of the primary residence within a set amount of time set by the lender. 
  • Multi-family unit can have up to four living units. 
  • Property must meet FHA standards. 

The bank might also have other factors they consider when looking at a loan for a multi-family property, including what the debt-to-income ratio will be after bringing in rent and if the borrower has been a landlord in the past. 

Other factors to consider not related to the loan are local ordinances for landlords, the time and money commitment of renting out a property, and other due diligence to make sure it is the right fit for you. 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

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