Can You Finance a 4-Plex with an FHA Loan?

When exploring avenues for investing in real estate, especially for first-time homebuyers or budding real estate investors, understanding financing options is crucial. One question that often arises is whether you can finance a 4-plex property using an FHA loan.

FHA Loans and Multi-Family Properties

One of the less commonly known benefits of FHA loans is that they can be used to finance multi-family properties, including 2-plexes, 3-plexes, and 4-plexes. However, there are specific conditions and benefits associated with this type of financing.

Owner-Occupancy Requirement

To use an FHA loan for a 4-plex, you must meet the owner-occupancy requirement. This means that you must live in one of the units as your primary residence for at least one year. This requirement distinguishes FHA loans from other types of investment property loans, which may not require the owner to live on-site.

Benefits for using an FHA loan on a 4-Unit Property

1. Income Generation: Financing a 4-plex with an FHA loan allows you to live in one unit while renting out the other three. This rental income can help cover your mortgage payments, making it an attractive option to help offset the payment and increase cash-flow.
2. Building Equity: By purchasing a multi-family property, you have the potential to build equity more quickly due to the rental income and appreciation in property value.
3. Affordability: The lower down payment and flexible credit requirements make it more feasible for individuals to enter the real estate market, even with limited funds or less-than-perfect credit.  Where else can you put just 3.5% down on an investment property?!

The Limitations and Considerations

While the benefits of using an FHA loan to finance a 4-plex are legit, there are some limitations and considerations to keep in mind:

1. Loan Limits: FHA loans have borrowing limits that vary by location. It’s essential to check the FHA loan limits in your area to ensure that the 4-plex you’re interested in falls within these limits.  We got you – go here
2. Property Standards: The property must meet FHA standards, meaning all of the units need to be in good condition and meet health and safety requirements. Any necessary repairs must be completed before the loan can be approved.
3. Mortgage Insurance: FHA loans require both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). These additional costs need to be factored into your budget, but the upfront mortgage insurance premium can be rolled into the loan amount.

Steps to Financing a 4-Plex with an FHA Loan

If you’re considering using an FHA loan to finance a 4-plex, here are the steps you need to follow:

1. Check Your Eligibility: Ensure that you meet the minimum credit score and debt-to-income requirements for an FHA loan.  To get an accurate FICO score avoid sites like CreditKarma, and instead use a site like Experian.com that will give you the actual FICO score lenders use.
2. Get Pre-Approved: Obtain a pre-approval letter from an FHA-approved lender. This letter will give you a clear idea of how much you can borrow and show sellers that you are a serious buyer.  We help you shop for the perfect FHA Lender – just sayin’!
3. Find a Qualifying Property: Work with a real estate agent to find a 4-plex that meets FHA standards and falls within the FHA loan limits for your area.
4. Submit an Offer: Once you find a suitable property, submit an offer and negotiate the terms and price with the seller.  Make sure the seller is aware you are using an FHA loan as they may need to complete repairs before and/or after the appraisal to make the deal work.
5. Complete the Loan Application: Work with your lender to complete the FHA loan application process, including providing necessary documentation.  The lender will likely ask for A LOT of documentation, so just go with the flow and be prepared for that.
6. Close the Deal: After your loan is approved, you can proceed to closing, where you’ll sign the final paperwork, pay any closing costs, and take ownership of the property.  Usually this happens the same day as closing!

Let’s wrap this up…

Financing a 4-plex with an FHA loan is not only possible but also a smart strategy for real estate investors and first-time homebuyers looking to maximize their investment potential. By meeting the owner-occupancy requirement and navigating the specific conditions associated with FHA loans, you can take advantage of lower down payments and flexible credit requirements to start building your real estate portfolio.  I’ve personally seen an 18 year-old build a $3 million real estate portfolio by the age of 23 by using this as one leg of his strategy

Remember to conduct thorough research, work with experienced professionals, and carefully evaluate your financial situation to ensure that this investment aligns with your long-term goals. We can put you in touch with the perfect FHA Lender!