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The FHA 203k Loan – When is it not the solution?

I can mark my calendar. In fact, I can almost set my watch. Every time there is a big investor seminar or other function here in Atlanta I’m going to get the phone calls. Dozens of new investors wanting to use an FHA 203k loan to acquire an investment property.

Let me cut straight to the point: Investors cannot use the FHA 203k loan to acquire and rehab investment properties UNLESS they intend to occupy the property for at least one year … preferably two … or they are a government or non-profit agency.

The FHA 203k will not work for non-owner occupied properties to individuals investing for profit.

Furthermore the rates aren’t that great, it’s more difficult to meet the qualifications on income, assets and debt-to-income ratio, and you don’t have as many options in terms as you would with a conventional rehab mortgage solution.

Effective in October of 1998 the FHA ceased allowing the 203k to be used for non-owner occupied investment properties. Obviously if you’re acquiring a duplex, triplex or quadruplex, those are investment properties. The stipulation is that you must live in the property.

Several conventional lenders offer better solutions, easier qualifications and more term options for owner occupied properties than you will find from an FHA insured loan program. (Remember, FHA does not make loans. You still borrow from a lender but the FHA insures a portion of the loan repayment to the lender.)

Simply put if you are looking to buy an investment property for rehab to add to your profitting portfolio you’re going to need another type of rehab loan. There are many solutions available and several allow you to close with nothing out of pocket and cover the cost of the rehab. All you’ll need to do is make payments on the acquisition amount and the draw down. Some select solutions even allow qualified borrowers to finance those payments back into the loan during the draw period.