November 21, 2013
We’ve gotten a variety of questions lately about the FHA loan rules for occupancy related to buying a single-family home. FHA loan rules state that a borrower must occupy the home purchased with a single-family FHA mortgage as his/her personal residence.
But what about when two or more people are obligated on the FHA home loan? Are both required to meet this occupancy rule?
FHA loan rules in HUD 4155.1 state that at least one person obligated on the FHA loan must live in the home as the primary residence. In cases where not all the borrowers will do so, the loan is classified differently and there are different rules that may affect the mortgage.
According to HUD 4155.1, Chapter 2 Section B, “A non-occupying borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence. When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV).”
But there ARE exceptions to that 75% limit.
Borrowers are eligible for maximum FHA loan financing for non-occupying borrower situations for FHA loan applicants who are related by blood, marriage, or law. Chapter Two describes these relationships, which include:
spouses
parents
children
siblings
stepchildren
aunts-uncles
nieces-nephews
…and, according to Chapter Two of HUD 4155.1, unrelated individuals who can document evidence of “a longstanding, substantial family-type relationship not arising out of the loan transaction”. The rules also add, “If a parent is selling to a child, the parent cannot be the coborrower with the child, unless the LTV is 75% or less.”
So while there are some restrictions and guidelines for non-occupying borrowers, this type of FHA loan IS possible. Discuss your needs with a loan officer to learn more.
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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