How to purchase investment property with an FHA loan

Buying property for investment rather than housing is on the increase across the country. According the National Association of Realtors, investment-home sales in 2015 jumped 7 percent to 1.09 million sales from 1.02 million in 2014. And owner-occupied purchases jumped 15.9 percent to 3.74 million last year, from 3.23 million in 2014 – that’s the highest level since 3.93 million in 2007.

Why are people buying these properties? Almost half of investment property buyers bought the home to rent it out, while 20 percent purchased the property because they found a deal too good to pass up.

There are many mortgage products available for you to finance these sales. But most people assume that loans backed by the Federal Housing Administration can’t be used due to the FHA’s requirement that borrowers reside in the property purchased.

There are instances, however, where you can use an FHA loan for an investment property. Perhaps the simplest example is buying a multifamily property. You live in one unit to make the property eligible for an FHA loan, and you rent out the others to generate income. And if you buy a duplex, the income requirements for the FHA loan will probably be the same as the requirements for single-family purchases.

Another exception would be if you use an FHA loan to purchase a primary residence and then later decide to buy another property to be your primary residence. You could refinance the original FHA loan for the now-rental property.

Real estate can be an attractive addition to your investment portfolio. Talk to your lender to understand the loan products available to you and which ones best suit your situation.