December 6, 2012
When a borrower applies for a single-family home loan to be guaranteed by the FHA, there are some occupancy rules which must be followed. According to the FHA official site, single-family home loans are for occupants, not investors.
Consider the rules as stated in HUD 4155.1 Chapter 4, which include a requirement that at least one borrower obligated on the mortgage loan use the property as his or her “principal residence”. What does that mean? According to Chapter 4,
“A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.” The rulebook also says, “At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to be considered owner-occupied.”
But that’s not all–there is a time requirement for this occupancy to take place. FHA loan rules say, “FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower’s principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year.”
The spirit and letter of the law, so to speak, of FHA occupancy rules is designed to keep single-family loans reserved for people who want to own homes, not investments.
That’s why the next paragraph in Chapter Four mentions a general prohibition on owning more than one home at a time purchased with an FHA guaranteed mortgage. “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. 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.”
There are exceptions to this rule, which we have covered in other blog posts. For more information contact the FHA at 1-800 CALL FHA.
Do you have questions about how FHA mortgage loans work? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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