December 1, 2017
Can I get an FHA home loan for a commercial property? The answer to this question is more complicated than a simple yes or no-much depends on what local zoning laws will allow, and how “residential” the property is.
FHA home loans are not just for typical suburban homes. There are a wide variety of house hunters, all looking for different types of properties to suit their needs, and there are plenty of options available aside from the suburban home.
A two bedroom home in the suburbs may not be right for borrowers looking for a new home close to work in the city, or for those interested in a different type of residence than a standard house. FHA insured mortgages are available for condos, duplexes and manufactured homes.
FHA mortgage loan rules do permit the purchase of property with a mixed residential/commercial use. In some cases, a borrower might be interested in buying a home that is zoned in a commercial district, or there might be a need for a small storefront or commercial office space. FHA requirements allow such purchases as long as they fall within certain guidelines.
FHA Loans Are For Residential Properties
In general, the property to be purchased with an FHA mortgage loan must be primarily residential in nature and the non-residential use of the property must be “subordinate” to the residential qualities of the home.
No more than 49 percent of the total floor space can be non-residential. The FHA also says the use of such property as a residence (in an area with commercial zoning) must be legal, or “legal nonconforming”.
The Appraisal Is Important
When it comes to commercial property versus private residential property, much depends on the appraiser’s judgment. According information posted on FHA official site, “The appraiser’s site analysis must accurately reflect the attitude of the typical purchaser. Predominantly commercial or business locations, or locations subject to noise or other influences adversely affecting the use and enjoyment of the typical owner or occupant should be avoided. The appraiser must address the effect of the applicable zoning ordinances on the value of the property.”
The property may or may not “pass” an FHA appraisal depending on whether it meets the minimum requirements, is suitably residential, and it may be compared (favorably or not) to similar properties in the local area.
As you can see from the above, each building would be reviewed on a case-by-case basis to determine its’ suitability for an FHA mortgage; when it comes to getting an FHA home loan for a property in a commercial zone, there’s no short answer. The appraiser is given flexibility to determine whether an FHA home loan would be appropriate for the property, which means the buyer must accept that such decisions are made on a case-by-case basis.
The FHA can and does approve loans on commercially zoned buildings deemed “primarily residential” in nature–something the borrower should always keep in mind when viewing such mixed-use buildings.
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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