These are loans on rental property that someone borrows with the intention of setting up or purchasing buildings for leasing or renting. They include FHA apartment loans among others. The federal housing administration is the governmental body that administers and oversees such kind of borrowing. Therefore, FHA loans are simply mortgages under the insurance of the FHA. They are the most preferred type of mortgages by first-time homeowners due to their low down payments.
To acquire this loan, you only need a down payment comprising 3.5% if your credit score is above 580. First-time owners are usually younger people who recently completed school and joined the workforce. Most of these individuals lack enough savings to buy a home or take a high-interest loan. Nevertheless, all debtors are required to pay insurance premiums on the mortgage to cushion the lender in the event of defaults by the borrower.
For borrowers who have a credit score below 580 but above 500, they need to make a 10% down payment to receive the loan. One fact to note, however, is that a lower credit score leads to a higher interest rate on the borrower.
What Type of FHA Loans Can I Opt For?
Various types of FHA loans were created to cater to different categories of people in need of rental house loans. The following are some of the most common types of these mortgage loans.
- Fixed rate FHA loan
This loan intends to benefit individuals who would desire to buy a home but have not saved enough cash to buy. Examples of this demographic include newlyweds, college graduates, and those who are still undertaking their education.
- Adjustable rate mortgage
Abbreviated as an ARM. These loans are offered by the department of housing and urban development(HUD). They usually target low to middle-income families who are trying to own their first home.
- FHA secure refinance loan
This is a mortgage that aims to protect borrowers from the threat of foreclosure. This situation is common among homeowners with variable mortgage rates who encounter financial constraints due to current interest rate increases.
- FHA reverse mortgage
This mortgage is tailored for older people above the age of 62. It enables a borrower to convert equity in the home to a line of credit or income.
- Energy efficient mortgage
These loans assist prospective or current homeowners in reducing their utility bills and integrating the cost of energy efficient fixtures into their mortgages.
- Graduated payment mortgage
These are housing loans offered to people who receive low to middle incomes and would like to purchase homes.
- FHA loans for condominiums
Also known as condo loans, FHA loans for condominiums are created for those who want to purchase an apartment within a condominium. This is one of FHA’s most popular loans.
What You Need to Know About FHA Loans Requirements
Your credit score and down payments are only 2 of the requirements for obtaining an FHA loan. Below is a detailed list of the key requirements for FHA loans 2017.
- You need a steady income source or to have worked under a single employer for at least two years
- A valid social security number, legal residency status in the US, and must be of legal age
- New loans are only for primary residency purposes
- A valid property appraisal from an appraiser approved by FHA
- The front-end ratio of borrowers must not fall below 31 percent of gross income.
- Backend ratio must fall below 43 percent of gross income
- A borrower must be bankruptcy free for at least two years and possess a re-established favorable credit.
- You must be out of foreclosure for three years and have reestablished your good
- All properties must meet specific minimum standards during appraisal.
Purchasing Rental Loans for Multiple Properties
A common question asked by many homebuyers is “can I have two FHA loans?’. The common norm is that a homeowner must first clear the previous loan before borrowing another. Moreover, one cannot have FHA loans for second homes. However, there are special cases whereby an individual can borrow a second loan under rules stipulated by the department of housing and urban development. The following are the unique circumstances that can necessitate a second FHA loan.
When Relocating to Another House
If a borrower relocates to an area that is beyond commuting distance of the existing home, the HUD can allow another FHA loan. For example, someone can get a job in a different state. In this case, they can borrow FHA building loans in the new state. The HUD has not established the acceptable commuting distance, but most lenders consider over one hour unreasonable.
Increased family size
If the homeowner’s family size rises considerably since the closure of the first FHA loan they can borrow another one. However, the borrower must provide proof that the current home is not spacious enough to accommodate the entire family.
What About Investment Properties?
Some people who wish to buy investment properties commonly wonder, “how many FHA loans can I have?” Purchasing property for rental is now on the increase across the country. As a result, there are many mortgage products aimed at providing rental real estate loans.
There are situations whereby you can utilize FHA loans for investment property. One of them is while buying property for many families. All you need to do is to reside in one of the units to gain eligibility for an FHA loan and rent out the rest of the units to make more money. Likewise, there are also FHA duplex loans for those who purchase duplexes. The requirements in this loan will be similar to those of a single unit.
Another instance in which you can purchase an investment property using an FHA loan is when you had earlier bought residential properties for rental purposes and later decide to buy another home for your primary residence. You are allowed to refinance the previous FHA loan for the former property which is now for rental purposes.
An Overview of FHA Loan Statistics in the USA
The table below shows the statistics on the mortgage industry for the year 2017
The above table clearly shows that there is a high rate of mortgage uptake across the US. Combined with all the facts mentioned above, this information effectively equips you to make the right mortgage choice depending on your financial circumstance.