Buying Commercial Real Estate With FHA Loans
If you thought you could not purchase commercial real estate with FHA loans, think again. While the FHA works with lenders to offer loans that are guaranteed by the government, these loans are not limited to single family residences. You cannot buy an industrial warehouse or a restaurant with an FHA loan, but you may be surprised by how an FHA loan can be used in commercial investments.
The FHA has several multifamily and healthcare mortgage programs available, which allow for approval of FHA loans on approved properties. These various programs cover a range of potential financing needs for these commercial properties. Commercial real estate investors considering the purchase or construction of eligible properties should explore the FHA programs. They could prove to be a smart business move.
Multifamily Properties: Acquisition, Refinancing, Construction and Rehabilitation
The FHA offers loans for acquisition and refinancing of multifamily properties, such as apartment buildings and complexes. The minimum loan amount is $1 million, and the allowable loan-to-value (LTV) ratio depends on the type of housing that will be provided. The allowable loan term is 35 years, or 75% of the anticipated useful life of the property, whichever is lesser. The units must all have separate kitchen and bath facilities; no shared facilities or rented rooms are permissible.
New construction and rehabilitation FHA loans are also available under this program. The minimum construction loan is $2 million, or the cost of rehabilitation must exceed $6500 per unit. For construction, the loan term is 40 years plus the duration of construction. As above, all units must have separate kitchen and bath facilities.
Healthcare Properties: Acquisition, Refinancing, Construction, Modernization and Rehabilitation
Loans are available for acquisition and refinancing of healthcare properties, such as assisted living, memory care and skilled nursing centers. However, these properties must meet several requirements to be eligible, such as a 20-bed minimum, continuous care for residents, three daily meals and appropriate government licensing of the facility.
Construction, modernization and rehabilitation loans have no maximum value, though the allowable LTV ratio is 90% and the maximum loan term is 25 years. Hospital and acute care facilities are also eligible for loans under this program.
As with all FHA loans, these programs set forth lending guidelines that must be followed by FHA lenders. Commercial real estate investors may not have previously considered purchasing these types of properties, but they may be worth exploring since they can be eligible for an FHA loan under these programs. Such financing can make a previously less attractive investment far more compelling.