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FHA insured loans for single-family homes are intended for the buyer to purchase property that is primarily used as a living space. Limited business use of such properties is permitted, but the FHA has strict rules governing how much of the property may be dedicated for business purposes such as a storefront, office space or storage facility.

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FHA.com is a privately owned website, is not a government agency, and does not make loans.

FHA Loans and Non-residential Use of the Property

February 25, 2011

FHA insured loans for single-family homes are intended for the buyer to purchase property that is primarily used as a living space. Limited business use of such properties is permitted, but the FHA has strict rules governing how much of the property may be dedicated for business purposes such as a storefront, office space or storage facility.

According to FHA requirements, appraisers must evaluate a property on a square footage basis for homes that have a portion of that footage dedicated to business use, and the FHA rules on homes, condos or multi-unit properties is that no more than 25% of the square footage can be dedicated for business or non-residential use.

FHA rules state "Any (emphasis ours) nonresidential use of the property shall be subordinate to its residential use and character." This includes business storage.

Properties with FHA mortgages are meant for someone to live in as a dwelling--the rules are designed to prevent business use of the home from overshadowing the residential portion of the property. That's indicated by a line in the FHA rulebook which states, "A property, any portion of which is designed or used for nonresidential purposes, is eligible only if the type and extent of the nonresidential use does not impair the residential character of the property."

To put it another way, you can't install a storefront in your living room or convert the kitchen into a storage facility.

Residential storage has its' own characterization--it's expected that closets, attics and basements would be used for such purposes. But areas dedicated as business storage space count against the maximum square footage allowed for business use. "Areas designed or used for nonresidential purposes shall not exceed 25 percent of the total floor area. Storage areas or similar spaces which are integral parts of the nonresidential portion shall be included in the total nonresidential area."

The FHA appraiser will make note of both business and personal storage space and is required to mark the business storage footage against the 25% allowable space for business purposes.

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