July 28, 2022
Back in 2018, we published an article about the FHA home loan rules for townhouses. Do they qualify for FHA home loans? One source defines a townhouse as:
“…multi-floor homes that share one- to two walls with adjacent properties” but which feature separate entrances for each property. What do the FHA home loan rules say about purchasing townhomes with an FHA mortgage?
FHA Loan Rules For Property Eligibility
The FHA Single Family Home Loan rule book, HUD 4000.1, has seen some important changes since we wrote the original article in 2018 but in 2022 it still says the following property types may be purchased with an FHA mortgage:
-detached or semi-detached dwellings
-Manufactured Housing
-townhouses or row houses
-individual units within FHA-approved Condominium Projects
As you can see from the above, FHA loans are possible for townhouses. They fall well within the FHA’s rules for loans–they can be for properties with a single unit or as many as four living units. Townhouses typically have two living units though configurations may vary.
A townhouse is given certain requirements in the FHA Lenders Handbook, depending on the nature of the loan.
For example, 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 of properties with as many as four units. For new purchases, rehab loans, and refinance loans it will be important to establish the nature of the property (condo, townhouse, etc. but regardless of the property type, an FHA loan cannot be used for certain properties even if they are in structures that are technically FHA-approved.
FHA Home Loan Restrictions
Your townhouse could meet FHA requirements but as in 2018 when we first wrote this article, you should know there are property types that can never be purchased with an FHA mortgage even if they are otherwise eligible for an FHA loan. They include (but may not be limited to) the following:
-Commercial enterprises
-Boarding houses
-Hotels, motels, and condotels
-Tourist houses
-Private clubs
-Bed and breakfasts
-“Transient housing”
-Vacation Homes
-Fraternity/sorority houses
Condos, townhomes, and other properties that are 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.
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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