FHA loans for rental properties
Learn about property requirements and limits
Many homebuyers use FHA loans to buy single-family homes. FHA loans are popular with homebuyers because they have lower down payments and more generous credit terms, which make homeownership more affordable.
You can also use FHA loans to buy an investment or rental property. There are two important restrictions to understand however. The first is that the property can have no more than four (4) rental units total. The second is that you need to occupy one of the units in the property as your primary residence.
You’ll also need to meet your lender’s credit, income, and financial standards to get your loan application approved. Read on to learn more about buying a rental property with an FHA loan.
FHA loan down payments for investment properties
The down payment requirements for buying a property with rental units are the same as the requirements for single-family homes. You can usually make a down payment as low as 3.5% of the purchase price when you have a credit score of at least 580 and higher. You typically have to make a 10% down payment when your credit score is below 580.
For example, pretend you want to buy a duplex that costs $375,000. With a credit score of 580, you might be able to make a $13,125 down payment. With a credit score lower than 580, your down payment might be $37,500.
FHA loan limits for investment properties
FHA loans also have limits which put a cap on the amount of money you can borrow with an FHA loan to buy a home. These limits vary by county across the United States and are based on the median price of houses in that county.
The good news is these limits are higher for two-family, three-family, and four-family homes compared to single-family homes. This means you may be able to buy a more expensive home with an FHA loan if that property also contains rental units.
For example, pretend you wanted to buy a property in Cook County, Illinois. For 2024, the single-family home loan limit in Cook County is $498,257. The limit for a two-family home is $637,950. The limit for a three-family home is $771,125 and the limit for a four-family home is $958,350. Learn more about FHA loan limits.
Refinancing investment properties with FHA loans
You may be able to refinance your investment property using the FHA streamline refinance program. The streamline program lets you lower your rate with less paperwork and a faster closing. To be eligible, the property needs to be financed with an FHA loan which you replace with a new FHA loan. You’ll also need to meet your lender’s other standards to get your refinance approved.
Is buying a rental property with an FHA loan a good idea?
FHA homebuyers need to answer this question for themselves. One potential benefit of owning a home with rental units is those units might earn income you can use to help pay your mortgage or other expenses. You will also become a landlord however, which comes with responsibilities and legal obligations. Consider the advantages and disadvantages before you make your decision.*
Freedom Mortgage is a top FHA lender in the United States according to Inside Mortgage Finance, Jan.–Sept., 2023.
* Freedom Mortgage Corporation is not a financial advisor. The ideas outlined above are for informational purposes only, are not intended as investment or financial advice, and should not be construed as such. Consult a financial advisor before making important personal financial decisions, and consult a tax advisor regarding tax implications and the deductibility of mortgage interest.
Last reviewed and updated January 2024 by Freedom Mortgage Corporation.