Can You Use an FHA 203(k) Loan for Investment Properties?
If you’ve been Googling “FHA 203(k) Loan for Investment Properties,” you’re not alone! Many people are curious about using this loan to fix up homes and turn them into investment properties. However, there’s a catch—FHA 203(k) loans aren’t available for pure investment properties. They’re meant for primary residences, meaning you must live in the home you're renovating.
So, the answer is: Not exactly — FHA 203(k) loans are meant for owner-occupied properties, not traditional investment properties. However, you can use a 203(k) loan to buy and renovate a 2- to 4-unit property if you plan to live in one of the units. This allows you to rent out the remaining units while meeting FHA's occupancy requirement, offering a way to invest while still following the rules.
How the FHA 203(k) Loan Could Work for Investment Properties
The FHA 203(k) loan is popular because it combines a mortgage with renovation funds, all in one loan. However, since it’s designed to encourage home-ownership, the buyer must live in the property for at least 12 months after purchase.
This works well for property-flippers who plan to live in and improve the property, but it’s not ideal for those looking to build a rental portfolio or invest in properties they don’t intend to live in.
Download Your FHA 203K GUIDE
So, What Are Your Alternatives?
Here’s the exciting part: Even though the FHA 203(k) loan might not work for the type of investment properties your looking to finance, there are conventional renovation loans that can help you fix up and flip properties or invest in rental properties. These loans offer similar benefits, such as allowing you to finance both the property purchase and renovation costs in one loan—a smart choice for investors.
Conventional Renovation Loans for Investors
- Fannie Mae’s HomeStyle® Renovation Loan:
This is a fantastic alternative for investors. It’s available for primary residences, second homes, and investment properties. You can use it to renovate a property you’re buying for investment purposes or to improve an existing rental. The HomeStyle® loan offers more flexibility with property types and is open to investors. - Freddie Mac CHOICE Renovation Loan:
Another great option, this loan allows you to finance both the purchase and renovation of an investment property, second home, or primary residence. It also enables you to make resilient upgrades for natural disasters, making it perfect if you’re investing in areas prone to extreme weather. - Fix-and-Flip Loans:
These short-term loans are designed specifically for investors who are buying homes to renovate and resell quickly. While interest rates may be higher, these loans often have faster funding, giving you flexibility in competitive markets. - Cash-Out Refinance:
If you already own investment properties, a cash-out refinance can fund renovations. It allows you to tap into the equity you’ve built to finance upgrades, repairs, or even purchase another property. - Hard Money Loans:
If you need flexibility or a faster timeline, hard money loans** could be the right fit. These loans are typically offered by private lenders and provide quicker access to funds—perfect for acting fast on a great deal.
Have Questions? Ready To Get Started?
Why You Should Still Contact Your 203(k) Renovation Specialist!
Even though the FHA 203(k) loan might not be the right fit for your investment property, your FHA Renovation Specialists can still help! They specialize in all kinds of renovation loans, including conventional options that are perfect for real estate investors like you. Whether you’re looking to fix and flip a property or renovate a rental, they’ve got the expertise to guide you through the process.
What’s Next?
If you’re ready to take the next step and explore your renovation loan options, give them a call! The experts for your state are happy to chat about your real estate investment plans and help you find the best financing solution. With the right loan in place, you’ll be one step closer to turning that property into a profitable investment!
