June 17, 2013
We answer many reader questions about FHA loans, FHA loan rules, and what it takes to qualify for an FHA insured mortgage. Did you know there is an occupancy requirement for all new purchase single family FHA mortgage loans? FHA loans for single-family purchases do have an occupancy requirement, which does not permit the borrower to buy the home then turn around and rent out the property to someone else.
According to the FHA loan rules found in HUD 4155.1, the home MUST be used as the principal residence or primary address. “A principal residence is a property that will be occupied by the borrower for the majority of the calendar year. 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.”
FHA loan rules add, “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 FHA further clarifies this rule by including another section which you can find in Chapter Four of HUD 4155.1. It states:
“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.”
Note the word, “generally” in the paragraph above. Some borrowers may, under certain circumstances, be granted an exception IF the borrower meets the right conditions. Those conditions may include an increase in family size or a relocation to an area that precludes a “reasonable commute”.
It’s very important to note that such exceptions would be handled on a case-by-case basis; there is also a loan-to-value requirement listed in the FHA loan regulations that’s important to keep in mind for some of these cases. According to Chapter Four, when an increase in family size is used as the justification for a second FHA home loan, the borrower must provide evidence, “…that the Loan-To-Value (LTV) ratio equals 75% or less, based on the outstanding mortgage balance and a current appraisal. If not, the borrower must pay the loan down to 75% LTV or less.”
Do you have questions about FHA home loans? 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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