Lending LoopHole: FHA Loan For An Investment Property

The FHA is aimed at promoting home ownership for consumers who do not ” fit the box”  by traditional credit standards, high credit score, big equity, low debt ratio etc. The FHA supports the housing market by offering an alternative financing vehicle for homeowners and buyers with little equity. The FHA makes loans on primary homes only -with a few exceptions

Exception 1-As as long as the property used to be a primary residence and the mortgage is an FHA insured loan, you can still get a new FHA Mortgage for that same property. Here is a scenario that will pass the ‘makes sense test’-house was purchased and lived in. Same consumer purchased a different primary home moved into that property, and has been renting out the original home ever since relocating.

Exception 2- property was purchased as a primary home and lived in, loan on the property is an FHA insured loan, consumer purchased and moved into a new primary residence and has turned the original home into a second home/vacation property they visit a few times per year.

To meet the rule-property must have been a former primary residence and has a current FHA Loan tied to that home. In such a scenario, a consumer can refinance that loan under the FHA Streamline Refinance Program.

What consumers should be aware of is that in recent years, FHA has increased their mortgage insurance premiums which can make an streamline refinance less attractive as the mortgage insurance premiums are higher than in years past.

Current FHA Mortgage Insurance Factors

Includes up to 1.75% of the loan amount amortized over the term of the loan as well as a monthly mortgage insurance factor based on 1.35% off the loan amount prior to the upfront mortgage insurance premium being financed.

Confusing?

Here’s an example…

Taking a loan amount for $400,000, financed loan amount becomes $407,000. 1.75% of $400,000 translates to $7000 which is then financed over the term of the loan. The monthly mortgage insurance would be a pricey $450 per month  before principal and interest, fire insurance or property taxes are even accounted for.

FHA Refinance Deals Sweeten For Consumers Who Took Out Mortgages Prior To May 31, 2009

FHA Loophole –even if the property is an investment property or second home that used to be a primary residence, lower FHA premiums apply. The upfront mortgage insurance premium  financed over the term of the loan, drops to just .01% of the loan amount, and the monthly premium is just .55% of the loan amount. These numbers change considerably using our $400,000 example. Upfront fee financed and the term of the loan drops to $4000 and the monthly drops to $183, indeed attractive for a vacation home or an income property.

These numbers also apply even if the home is still your primary residence, occupancy does not change the terms  or amounts mortgage insurance.

More Scenarios for Occupancy Related FHA Mortgage Loans

Mortgage Tip: You can even have to two FHA Mortgage Loans out at the same time- yep, concurrently.

Trying to purchase another principal residence with an FHA mortgage?

If yes, here are some makes sense paths to explore:

  • new property would have to be out of a reasonable commute time  from the distance of your current primary home
  • growing family  creates the need for “more house”
  • departing from a jointly owned property with another party

Trying to get an FHA mortgage? Been  turned down because your scenario doesn’t make sense? Talk to a make sense mortgage lender for your FHA mortgage loan scenario. Let an FHA expert structure your loan today by getting a complementary mortgage rate quote.

 

 

 

 

 

 

Posted in:

RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

5 practical ways to increase your purchasing power when buying a home

How to avoid a contingent offer to buy a new home without selling your current home first

Buying a new home while still owning your current home can be a challenging process,…

Mortgage Word Cloud Art

Why your income is your lifeline to finance a home

Getting mortgage loan financing requires you providing a blend of good cash, ample credit, and…

Why the purchase price in a real estate transaction should not be the single most important factor

Why the purchase price should not be the single most important factor

When buying a home most would believe the number one most important thing you need…

How to avoid getting a jumbo loan due to Coronavirus

Here are 2 mortgage process problems you will want to avoid

Securing mortgage loan financing is the cornerstone of financial prosperity in America. It’s one of…

View More from The Mortgage Files:

begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!