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There are FHA home loans for a variety of property types including duplexes, condo units, planned unit development, and also townhouses. FHA’s rules for home loans generally allow for a single unit or as many as four living units. Townhouses typically have two living units.

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Can I Buy a Townhouse With an FHA Mortgage?

August 4, 2022

Can I Buy a Townhouse With an FHA Mortgage?
The short answer is “yes” to the question, “Can I buy a townhouse with an FHA mortgage?”

There are FHA home loans for a variety of property types including duplexes, condo units, planned unit development, and also townhouses. FHA loan rules in HUD 4000.1 define the concept of a townhouse as:

“...multi-floor homes that share one- to two walls with adjacent properties” but which feature separate entrances for each individual property. 

This is an important distinction because some property types come with different rules. If you buy a condo with an FHA loan, for example, you can’t be subject to any condo owner association bylaws that restrict your right to freely sell or transfer the property.

The FHA Single Family Home Loan rule book, HUD 4000.1, has seen some important changes in the last few years. If you haven’t looked into your FHA home loan options in a while, you’ll be glad to note townhomes are still eligible properties under the FHA loan program.

FHA’s rules for home loans generally allow for a single unit or as many as four living units. Townhouses typically have two living units though configurations may vary, and two-unit townhomes typically fall into the FHA requirements for a home loan. What kind of requirements?

One example; when applying for an FHA 203(k) rehab loans have specific requirements for approved improvements on the property where townhomes and townhome-style condo units are being financed or refinanced. 

“…after rehabilitation is complete, the unit is located in a Structure containing no more than four units. For townhouse style condominiums, each townhouse is considered as one Structure, provided each unit is separated by a one and one- half hour firewall from foundation to roof”.

FHA home loans permit the purchase, refinance, or improvement of properties with as many as four units. But even when the property type is acceptable (such as a townhouse) there are factors that could complicate the loan.

For example, you might be interested in using an FHA mortgage to buy a townhome with an eye on renting out one of the units to a “permanent” tenant. That is acceptable to the FHA. What is not acceptable is when a borrower wants to rent out the unused living unit as an Airbnb space.

Short-term rentals 30 days and under are not allowed for properties to be purchased with an FHA loan. There are other restrictions in this area; here is a list of properties are that are basically ineligible for an FHA mortgage regardless of configuration (condo, townhouse, suburban house, etc.) or size:
 
  • Commercial enterprises
  • Boarding houses
  • Hotels
  • Motels and condotels
  • Tourist houses
  • Private clubs
  • Bed and breakfasts
  • “Transient housing”
  • Vacation Homes
  • Fraternity/sorority houses
All properties purchased with an FHA mortgage must be the owner’s primary residence within 60 days of closing time, and occupancy is a condition of loan approval.

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