March 20, 2013
We answer a lot of reader questions about FHA loans. One of them most common involves the FHA occupancy regulations for single family loans. Readers want to know if they can rent out a house purchased with an FHA loan under the single-family mortgage program. Is this possible? Are FHA single-family mortgages available for vacation homes or other limited-occupancy residences?
A look at the FHA loan rulebook clears up these questions quickly According to HUD 4155.1, Chapter Four Section B, we learn the following under the section titled Eligibility Requirements For Principal Residences:
“This topic contains information on eligibility requirements for principal residences, including
• a definition of principal residence
• the FHA requirement for establishing owner occupancy
• FHA-insured Mortgages on principal residences and investment properties,
and
• exceptions to the FHA policy limiting the number of mortgages per borrower.”
The rules go on to state, “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 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.”
What does the FHA consider a “principal residence”? According to Chapter Four, “A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.”
What is to stop a borrower from staying in the property for the one-year minimum, converting it to a rental unit, and purchasing another home with an FHA loan? Chapter Four Section B has the answer:
“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.”
For more information on these rules, contact the FHA directly.
Do you have questions about FHA loans or FHA refinance loan requirements? Ask us in the comments section.
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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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