The allure of real estate investment often leads prospective investors to explore various financing options, including FHA mortgage loans. Many borrowers want to know about FHA loans and investment properties so we are publishing this article to shed some light. Can one utilize an FHA loan to acquire an investment property?

These infamous home loans are renowned for their low down payment requirements and flexible credit criteria. FHA loans are primarily designed to facilitate homeownership for individuals purchasing a primary residence.

Can I Get an FHA Mortgage for Investment Property?

FHA investment property loans

With an FHA loan, you are required to reside in the property for at least one year, though you can rent out extra units if the property is multi-unit.

Down payments start as low as 3.5% for credit scores of 580 or higher, and 10% for scores between 500 and 579.

FHA loans come with mortgage insurance premiums, adding to the overall cost. Loan limits vary depending on location and property size.

Typically, you can only have one FHA loan at a time, which may restrict the growth of your real estate investments.

Understanding FHA Loan Intentions

FHA loans are government-backed mortgages intended to promote homeownership among individuals who might face challenges qualifying for conventional loans. A fundamental stipulation of FHA financing is that the borrower must occupy the purchased property as their primary residence. Consequently, FHA loans are generally inapplicable for direct investment property purchases, such as second homes, vacation properties, or rental units where the owner does not reside.

Owner-Occupied Multi-Unit Properties: A Strategic Exception

An intriguing exception exists within FHA guidelines that permits a blend of residence and investment. Borrowers can use FHA loans to purchase multi-unit properties, specifically those with up to four units, provided they occupy one unit as their primary residence. This strategy enables homeowners to live in one unit while renting out the remaining units, thereby generating rental income that can offset mortgage expenses. This approach not only facilitates homeownership but also serves as an entry point into real estate investment.

Occupancy Requirements and Compliance

To adhere to FHA regulations, borrowers must establish occupancy within 60 days of closing and maintain the property as their primary residence for at least one year. Failure to comply with these occupancy requirements can result in severe penalties, including loan acceleration and potential legal action. Therefore, it’s imperative for borrowers to genuinely intend to reside in the property and not use FHA financing solely as a conduit for investment purposes. Learn more about applying for FHA loans from the experts.

Non-Occupant Co-Borrowers: Enhancing Qualification Prospects

FHA provisions allow for non-occupant co-borrowers, typically family members, to co-sign the loan. This arrangement can bolster the primary borrower’s qualification prospects by incorporating the co-borrower’s income and credit history. However, the primary borrower must still occupy the property as their principal residence. It’s noteworthy that the inclusion of a non-occupant co-borrower does not transform the loan’s purpose; the property cannot be designated purely for investment.

Subsequent Conversion to Investment Property

Life circumstances may evolve, prompting homeowners to relocate and convert their primary residence into a rental property. While FHA loans are initially designated for owner-occupied properties, there are no prohibitions against converting the property into an investment asset after fulfilling the occupancy requirement. Homeowners should be aware of any stipulations in their loan agreement and consult with their lender to ensure compliance with all relevant guidelines.

FHA Loans for Multi-Unit Properties

Although Federal Housing Administration insures FHA loans which are mostly designed for primary residences, they can be used for investment purposes if the borrower purchases a multi-unit property (up to four units) and occupies one of the units. Learn more about how to finance a MFR home.

  • Key Features: Down payments as low as 3.5% and lower credit score requirements (minimum of 580 for most borrowers).
  • Pros: Accessible financing for first-time investors and those with limited funds for a down payment.
  • Cons: Strict owner-occupancy requirements and mandatory mortgage insurance premiums (MIP).

FHA mortgage loans are an ideal entry point for new investors looking to generate rental income while living in one unit of a multi-family property.

Can You Get an FHA Streamline Refinance with an Investment Property?

No, technically, FHA Streamline Refinancing is not available for investment properties. The FHA streamline refinance program is specifically designed for homeowners who occupy their property as a primary residence. The program allows borrowers with an existing FHA loan to refinance into a lower interest rate or better terms without requiring a full credit check, income verification, or property appraisal in many cases. However, FHA guidelines require that the property be owner-occupied to qualify for this streamlined process.

If you initially used an FHA loan to purchase a property as your primary residence but later converted it into an investment property, you may not be eligible for FHA Streamline Refinancing. Borrowers with investment properties may need to explore other refinancing options, such as conventional loans, cash-out refinances, or non-QM loans, depending on their specific financial circumstances and goals.

Alternative Financing for Investment Properties

For individuals whose primary objective is to invest in real estate without occupying the property, conventional loans are the more appropriate financing vehicle. These loans typically necessitate higher down payments, often ranging from 15% to 25%, and impose more stringent credit requirements. However, they do not include the owner-occupancy stipulations inherent in FHA loans, making them suitable for pure investment purposes.

Top 4 Loans for Investment Properties in 2025

Investing in real estate is a powerful strategy for building wealth, and choosing the right financing option is critical for maximizing returns. In 2025, a variety of loan products are available to help investors acquire or improve investment properties. Here’s a look at the top four loans for investment properties in 2025, each catering to different financial goals and borrower profiles.

1. Conventional Loans

Conventional loans remain one of the most popular choices for financing investment properties. These investment property loans, offered by traditional lenders like banks and credit unions, are not government-backed and typically require higher credit scores and larger down payments compared to loans for primary residences.

  • Key Features: Down payments usually range from 15% to 25%, and borrowers need a credit score of at least 620, although higher scores unlock better rates.
  • Pros: Competitive interest rates and no restrictions on property use.
  • Cons: Stricter qualification requirements and higher closing costs.

Conventional loans are ideal for experienced investors who meet the stringent credit and income criteria and prefer long-term financing options with predictable terms.

2. DSCR Loans (Debt Service Coverage Ratio Loans)

Debt Service Coverage Ratio (DSCR) loans are tailored for real estate investors who rely on rental income to qualify. These unique loans focus on the property’s cash flow rather than the borrower’s personal income or employment status. Ask the lender about the availability of a DSCR HELOC.

  • Key Features: Approval is based on the ratio of the property’s rental income to its expenses, such as mortgage payments, taxes, and insurance.
  • Pros: No personal income verification, making it suitable for investors with multiple properties or self-employed borrowers.
  • Cons: Slightly higher interest rates compared to traditional loans.

DSCR loans are excellent for investors seeking a streamlined qualification process focused on the property’s financial performance rather than their personal income.

3. Hard Money Loans

Hard money loans for bad credit are short-term, high-interest loans provided by private lenders. These loans are asset-based, meaning the property itself serves as collateral, and lenders focus less on the borrower’s creditworthiness.

  • Key Features: Quick approval process, higher interest rates (8%–15%), and loan terms typically lasting 6–36 months.
  • Pros: Perfect for fix-and-flip projects or investors needing quick cash for time-sensitive deals.
  • Cons: High costs and shorter repayment periods.

Hard money loans are a go-to option for investors pursuing short-term opportunities, such as flipping properties or renovating and reselling homes.

4. Second Mortgages

Many homeowners choose to take out a 2nd mortgage lien with either a home equity loans or an equity line of credit. The HELOC allows investors to tap into the equity of an existing property to finance new investment opportunities. It works like a revolving line of credit, offering flexibility for ongoing or phased investments.

  • Key Features: Borrowers can draw funds as needed, and interest rates are typically variable.
  • Pros: Flexibility to use funds for various purposes, including down payments, renovations, or property purchases.
  • Cons: Requires significant equity in an existing property and can carry fluctuating interest rates.

Getting a HELOC for an investment property is perfect for experienced investors looking for flexible financing to fund multiple investment projects or property improvements.

Choosing the Right Investment Property Loan for Your Investment Goals

Selecting the right loan depends on factors such as your credit profile, investment strategy, and financial goals. Conventional loans are ideal for long-term investments, while DSCR loans cater to income-focused properties. FHA loans open doors for first-time investors, while hard money loans and HELOCs offer solutions for short-term or flexible financing needs.

In 2025, investors have access to a diverse range of loan products tailored to different real estate strategies. Whether you’re a seasoned investor or just starting, understanding these options will help you choose the best loan for your needs. Always consult with a financial advisor or mortgage professional to ensure your financing aligns with your long-term investment objectives.

In summary, while FHA loans are not directly applicable for purchasing non-owner-occupied investment properties, they offer a viable pathway for acquiring multi-unit residences where the owner can inhabit one unit and lease the others. This strategy aligns with FHA’s mission to promote homeownership while allowing for supplementary rental income. Prospective borrowers should conduct thorough research, ensure compliance with FHA occupancy requirements, and consider consulting with mortgage professionals to explore the most suitable financing options tailored to their specific investment goals.

References

Investopedia. (n.d.). Can FHA Loans Be Used for Investment Property? Retrieved from https://www.investopedia.com/ask/answers/112515/can-fha-loans-be-used-investment-property.asp

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