November 17, 2023
Did you know that occupancy is a requirement when you buy a house with an FHA loan?
FHA policy for occupancy requires at least one borrower obligated on the mortgage to take up residence in the home as the primary residence. This must happen within a “reasonable time” of loan closing, normally 60 days, unless you make other arrangements with the loan officer.
FHA Loan Occupancy Rules For Single-Family Homes
HUD 4000.1 is the FHA Single-Family Lender’s Handbook. In that handbook, you’ll find regulations covering occupancy as a condition of FHA loan approval. You won’t be approved for an FHA mortgage if you aren’t planning to use the home purchased with your loan as your primary address.
How Will The FHA Know You Occcupy The Home?
Loan officers are busy people. Will your lender have time to personally verify occupancy in every case? Likely not. Sometimes, a loan officer may take the borrower’s word on the occupancy issue. But FHA loan rules require a measure of due diligence, as we’ll learn below.
Borrowers Must Agree To FHA Occupancy Rules In Writing
What follows is not legal advice.
When you sign your FHA loan agreement, it is important to know that by doing so, you consent to the terms of the occupancy in your new home. This is a legally binding agreement.
Violating the legal agreement you signed with the lender may make you liable for breach of the loan agreement. That is one reason why some borrowers hire a lawyer to review their purchase contracts first.
FHA Loan Rules In HUD 4000.1 Say Occupancy Inspections Are Possible
An FHA mortgagee letter from late 2023 clarifies FHA and HUD inspection policy.
“HUD requires mortgagees to perform property inspections to determine occupancy status, ascertain property condition and to maintain property preservation.”
According to the mortgagee letter, single-family homes purchased with FHA mortgages should “not contribute to neighborhood blight but support vibrant communities while safeguarding the Mutual Mortgage Insurance Fund.” Hence the emphasis on occupancy.
FHA loan rules in HUD 4000.1 and the FHA mortgagee letter dictate that first-time vacant property inspections and follow-up inspections must happen. Will you get in trouble with the FHA for not using the home as your home address?
Your experience may vary, but it is worth remembering that the FHA does commit on paper to verifying occupancy as described above. Better safe than sorry.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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