FHA Loan Articles
News, updates, and explanations to keep you informed.
FHA Loans and Owner Occupancy
There are often questions potential borrowers have regarding FHA loan requirements for occupancy; some borrowers may wish to purchase a home with the idea they will become landlords of that property.
FHA regulations for single-family homes to be purchased with an FHA mortgage have occupancy requirements that prevent this.
FHA loan rules state the borrower applying for a new purchase single family residence must use that residence as the primary occupant or as the "primary residence". But what does the FHA consider a "principal residence" or "primary residence"? Can the FHA approve a second FHA mortgage for those who purchase single-family, owner-occupied property?
The FHA loan rules found in a document known as HUD 4155.1 provide the answer, in the section titled "FHA-Insured Mortgages on Principal Residences and Investment Properties". What follows is the FHA rules for these issues:
"To prevent circumvention of the restrictions on making FHA-insured mortgages to investors, FHA generally will not insure more than one principal residence mortgage for any borrower."
The short answer to these types of FHA loan questions regarding occupancy and renting out the property? If you want to buy a home, the FHA expects you to use it as YOUR home.
Additionally, "FHA will not insure a mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance."
To further clarify this issue, FHA loan rules also add, "Any person individually or jointly owning a home covered by an FHA- insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations as described in HUD 4155.1 4.B.2.d." Those types of circumstances should be discussed with an FHA representative and/or your loan officer. Check with FHA if you have circumstances that might be considered eligible for an exception to these FHA loan rules.
It's important to note that borrowers who do not adhere to the FHA occupancy rules could be considered to be acting in "bad faith" on their FHA mortgage loans. Contact your loan officer or the FHA directly to learn what the consequences of acting in bad faith on an FHA loan may be in your state.
FHA NEWS and RELATED ARTICLES
One type of question that sometimes arises about FHA loans-- Is there a no-credit-check version of an FHA mortgage loan? What is the criteria required for FHA loans that do not require a credit check and/or appraisal?
One not-so-common question about FHA loans still comes up often enough to discuss in detail. Some FHA loan applicants want to know if they can purchase a residence from another family member using an FHA insured mortgage.
Except for obligations specifically excluded by state law, the debts of the non-purchasing spouse must be included in the borrower’s qualifying ratios if certain conditions are met.
Some FHA borrowers have questions about applying for an FHA loan after experiencing a short sale on a previous home. The FHA loan rules found in HUD 4155.1 have the answers for borrowers applying for an FHA mortgage after a short sale.
The FHA and HUD issued new rules for mortgage insurance designed to add fiscal security to the loan program, and when those rule changed the new guidelines were published in Mortgagee Letter 2013-04.