FHA loans are primarily designed for home buyers to purchase a residence. However, some FHA loans are designed specifically with the real-estate investor in mind. While these options can differ from a traditional FHA loan, investors can put very little money down when making a real-estate investment.
The two most common types of FHA loans used by investors are the 203k rehabilitation loan and the assumption of a current FHA loan. Both have very different requirements for qualifying.
A 203k loan is used for an investor to purchase a property in need of rehabilitation. While waiting to close escrow on this property, the investor must have the available funds or credit to make improvements or repairs on the property that will be reimbursed through the loan at closing.
Qualifying for a 203k Loan
When using a 203k loan to purchase an investment property, an investor must qualify per the income and credit stipulations currently set in place by FHA regulation. If she does not plan to live in the home for at least two years, this loan option is not viable.
Many investors will assume an FHA loan. In this scenario the current owner signs over the property and the loan to an investor to pay off the balance of the mortgage.
Loan Assumption Qualification
Loan assumptions will normally require that the investor qualify under the lender’s guidelines. This can be an attractive option for an investor as he can assume a loan for a minimal out-of-pocket expense.
Benefits of Loan Assumption
FHA loan assumptions often do not require that the investor inhabit the property for any length of time. This means that the investor can rehabilitate and “flip” the property for a profit much faster than she can under alternative FHA loan vehicles.