Loan Modification

Wanna Be a Landlord? FHA Does Apartment Loans

By Gina Pogol

FHA’s Section 207/223(f) program insures loans on apartment buildings. And you though FHA was only for primary residences! Loan terms of up to 35 years and government backing keep qualified buildings affordable to landlords, which keeps rentals available and affordable for tenants.

What kind of property can be financed?

FHA can finance the following with multifamily loans:

* Property must contain at least 5 units

* Structures cannot require extensive rehabilitation

* Units must have complete kitchens and baths (no rooming houses, motels, etc.)

How much can you borrow?

FHA insures loans for up to the lesser of:

* 85% of appraised value

* 85% of acquisition cost

* Statutory loan limits

* Mortgage amount supported by 85% of net rental income

What do you have to do?

If you can use a Multifamily Accelerated Processing (MAP) approved lender, the lender prepares your package for submission to a local Multifamily Hub or Program Center for review. Other HUD-approved lenders will submit your package to a local HUD field office. The Multifamily Hub or field office reviews the application to determine whether the proposed loan is an acceptable risk — lenders don’t make the decision. Considerations include market need and the capabilities of the borrower. FHA underwriting analysis must determine that there is enough project income to repay the loan, taking into account all necessary project expenses. The interesting thing about multifamily mortgages is that your personal income is less important than the income generated by the building. That’s why one way of determining your loan amount is a mortgage that can be supported by 85% of the apartment’s net income.

How do you find an approved lender?

HUD keeps a list of MAP lenders online. There aren’t that many on this list (updated on August 27, 2010). Or you can try a HUD-approved lender on this site.

What are interest rates like?

Rates vary, and you’ll want to shop for your best deal, but currently they range from just under 4% to just under 7%, depending on the length of the loan.

Full post as published by FHA Mortgage Guide on September 20, 2010 (boomark / email).