April 8, 2015
A reader asks, “I saw a home I liked far away in another state. I could very easily afford 20% down and also very easily afford the mortgage payments. My problem is that my FICO is probably too low for a conventional loan. I don’t want to be an investor. I just want to live in the house. I can not move to where the house is for two years and I assume it will be off the market by then.”
“If I could get the home today, I would be just fine leaving it empty till I could move to that area. I’m pretty sure I could get an FHA loan except for the owner occupancy rule. I would never break the law, but I wonder if the FHA would understand my situation. If not, is there any other path for me outside of raising my FICO to 620? I plan to do this, but I’m afraid the house would be sold by then. I really like this house. PS: The house is in perfect condition and needs no repairs at all.”
Occupancy is required on FHA mortgage loans, and the FHA doesn’t provide an “out” to that requirement. The occupancy rules are in part designed to prevent FHA single-family home loans from being used as investment properties, and the rules address occupancy including cases where the FHA borrower is already a non-occupying co-borrower on another FHA mortgage.
“A borrower may be qualified for an FHA-insured mortgage on his/her own principal residence even if he/she is a non-occupying coborrower with a joint interest in a property being purchased by other family members as their principal residence with an FHAinsured mortgage.”
FHA loan rules are clear with regard to occupancy for “typical” home purchases with FHA loans. In HUD 4155.1 Chapter Four Section B we find the following instructions from the FHA to the lender:
“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.”
Where the FICO score issue is concerned, borrowers who have issues with their credit should contact the FHA directly by calling their hotline: 1-800-CALL FHA. Request a referral to an FHA/HUD approved housing counselor in your local area. The housing counselor can assist with pre-purchase issues and may be able to suggest strategies for becoming a more credit-worthy FHA loan applicant.
Do you have questions about FHA loans or refinance loans? Ask us in our comments section. All comments are reviewed prior to appearing on the site.
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.
Browse by Date: