Size Matters: Buying a Multi-Unit Home With an FHA Mortgage
September 30, 2023
It is easy to assume an FHA mortgage is for single-unit homes only. Many first-time homebuyers are looking for smaller properties, and the thought of using an FHA mortgage to buy a house with multiple living units might not occur to these buyers.
But if you need a house, you can grow into instead of out of, a home with more than one living unit may be a smart investment, depending on your financial goals and needs.
Why Buy a Multi-Unit Home With an FHA Mortgage?
FHA loan rules say you can buy a house with as many as four living units and still be approved for an FHA mortgage. You must intend to occupy the home since FHA loan rules require owner occupancy. But you are free to use the other living units for yourself or rent them out to others.
This is a way to enter the world of property management and being a landlord. For some, this is very tempting. Others just want the additional living space. Either way, a multi-unit home is an option for all financially qualified FHA loan applicants, not just first-time buyers.
Qualifying for a Multi-Unit Home Loan
Did you know that FHA loan limits are higher for two-unit homes than for single-unit properties? The limits increase based on the number of living units.
Your FHA loan limit is higher for a four-unit home than a single-unit one. Some overlook that when researching their options and mistakenly assume the FHA loan limit for a single-unit home applies across the board.
Your lender may require higher FICO scores for the most competitive interest rates on a multi-unit home. Be ready for this by working on your credit earlier and taking a more proactive approach to managing your finances.
What to Know About Buying a Multi-Unit Home
FHA loan rules allow the purchase of up to four-unit properties. But you should ensure your participating lender will approve a loan for a home that large.
Not all lenders will, and for some FHA loan products, a multi-unit home is not permitted (based on lender standards.) For example, think about the lender standards for One-Time Close construction loans.
These mortgages are typically for single-unit homes, and even though FHA loan rules allow construction loans for multi-unit houses, your lender might not choose to offer them.
It pays to ask this question well in advance when screening potential lenders. Don’t assume all FHA loan officers have the same basic options. Some may be more selective about which FHA loans they offer.
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Carefully Read Your Closing Disclosure
Buying a Home With a Co-Borrower
But if you need a house, you can grow into instead of out of, a home with more than one living unit may be a smart investment, depending on your financial goals and needs.
Why Buy a Multi-Unit Home With an FHA Mortgage?
FHA loan rules say you can buy a house with as many as four living units and still be approved for an FHA mortgage. You must intend to occupy the home since FHA loan rules require owner occupancy. But you are free to use the other living units for yourself or rent them out to others.
This is a way to enter the world of property management and being a landlord. For some, this is very tempting. Others just want the additional living space. Either way, a multi-unit home is an option for all financially qualified FHA loan applicants, not just first-time buyers.
Qualifying for a Multi-Unit Home Loan
Did you know that FHA loan limits are higher for two-unit homes than for single-unit properties? The limits increase based on the number of living units.
Your FHA loan limit is higher for a four-unit home than a single-unit one. Some overlook that when researching their options and mistakenly assume the FHA loan limit for a single-unit home applies across the board.
Your lender may require higher FICO scores for the most competitive interest rates on a multi-unit home. Be ready for this by working on your credit earlier and taking a more proactive approach to managing your finances.
What to Know About Buying a Multi-Unit Home
FHA loan rules allow the purchase of up to four-unit properties. But you should ensure your participating lender will approve a loan for a home that large.
Not all lenders will, and for some FHA loan products, a multi-unit home is not permitted (based on lender standards.) For example, think about the lender standards for One-Time Close construction loans.
These mortgages are typically for single-unit homes, and even though FHA loan rules allow construction loans for multi-unit houses, your lender might not choose to offer them.
It pays to ask this question well in advance when screening potential lenders. Don’t assume all FHA loan officers have the same basic options. Some may be more selective about which FHA loans they offer.
------------------------------
RELATED VIDEOS:
Understand the Reasons for Private Mortgage Insurance
Carefully Read Your Closing Disclosure
Buying a Home With a Co-Borrower
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