May 16, 2016
FHA single family home loans permit a qualified borrower to choose from many different types of property to buy with an FHA mortgage. You can choose a typical suburban home, a townhouse, condo, or a manufactured home. Other options include condos, modular homes, and mixed-used property that meets FHA loan requirements.
But one thing is required no matter what kind of eligible property you decide to purchase with an FHA mortgage; borrowers must meet FHA loan occupancy rules as a condition of loan approval. What does this mean?
HUD 4000.1, page 135 has the FHA loan rules for occupancy, stating that all FHA loans require the borrower to take possession of the property as the principal residence within a reasonable time once the loan has closed. According to HUD 4000.1:
“At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year.”
FHA rehab loans may have different terms and conditions due to the nature of the loan–if the loan closes and rehab work is still being done on the property, it makes sense that the borrower may need a different time frame to actually begin occupying the property.
Upon learning the requirements for occupancy with an FHA single-family home loan, many want to know exactly what the FHA’s definition of occupancy is and what exactly using the home as a “principal residence” is defined as by the FHA/HUD. According to HUD 4000.1:
“A Principal Residence refers to a dwelling where the Borrower maintains or will maintain their permanent place of abode, and which the Borrower typically occupies or will occupy for the majority of the calendar year. A person may have only one Principal Residence at any one time.”
Furthermore, in the same section, FHA loan rules state:
“FHA will not insure more than one Property as a Principal Residence for any Borrower, except as noted below. 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.”
The “except as noted below” portions of the rule include circumstances where the borrower may have to relocate due to employment requirements, or when a borrower needs a larger home to accommodate a change in family size. We will cover the specific exceptions in a future blog post.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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