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FHA loan rules include the ability for borrowers who intend to be owner-occupiers to buy multi-unit properties. For an FHA loan on a multi-unit home to be approved, the borrower must occupy at least one unit. FHA home loans are for primary residences only.

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FHA Home Loan Tips for Buying Multi-Unit Homes

January 10, 2020

FHA Home Loan Tips for Buying Multi-Unit Homes
FHA loan rules include the ability for borrowers (who intend to be owner-occupiers) to buy multi-unit properties. For an FHA loan on a multi-unit home to be approved, the borrower must occupy at least one unit. FHA home loans are for primary residences only, but you are free to rent out the unused spaces in the home to others.

Basic FHA down payment and credit requirements are the same for single-unit and multi unit properties alike. However, lender standards may vary depending on the lender, so it is important to ask how FHA loans for multi-unit properties may differ with a given lender than from single-family units.

FHA Home Loan Limits on Multi-Unit Homes

FHA loan rules permit a qualifying borrower to apply for a loan to buy a home with as many as four living units. However, you will need to check with the individual lender to see how many units that lender is willing to allow you to purchase with a single-family home loan.

As mentioned above, FHA multi-unit home loans are for owner-occupiers only, and there is a restriction on the uses of the property. You can’t run an AirBnB, bed-and-breakfast, or other “transient occupancy” operation where the renters stay fewer than 30 days.

FHA Loan Rules for Rental Income

If a borrower needs an FHA loan for multiple unit home, is it possible to convince the lender to factor in any potential income from such rental as part of the applicant’s debt-to-income ratio? FHA Loan rules do technically permit this but certain qualifying circumstances may be required; much depends on whether or not the applicant has experience as a landlord or a history or receiving rental income.

Appraisal Issues

Multi-unit properties must, like all homes to be purchased with an FHA mortgage, meet FHA minimum standards and pass an FHA appraisal. Appraisals are a tool for the lender to establish the fair market value of the home and should not be considered a guarantee of any kind for the borrower, even if the home “passes” the appraisal.

This appraisal is NOT a home inspection and does not certify that a home is defect-free. All FHA borrowers, potential landlords or not, should expect to pay for the optional home inspection to get a much more informed view of the home’s condition.

Multi-unit properties to be purchased with FHA loans are subject to the usual FHA minimum standards. Borrowers should expect to pay for the appraisal, negotiate with the seller over the cost of any required corrections or repairs that might be required as a result of the appraisal, and anticipate the expense of any required compliance inspections.

State law and other requirements may factor into your purchase of a multi-unit home, especially for those borrowers who anticipate becoming landlords. Be sure to ask your lender, real estate agent, or other local authorities about any local regulations that may affect your plans.

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