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.
