January 20, 2011
An FHA insured home loan for a single family property has rules that govern the use of the home when it comes to what the FHA defines as “non-residential” purposes. FHA requirements say appraisers must evaluate a property on a square footage basis for homes that have a portion of that footage dedicated to business use. FHA rules say that any home, condo or multi-unit property must use no more than 25% of the square footage for business or non-residential use.
That’s fairly well-established and well-known by experienced lenders and real estate agents. What’s not so well known is how that non-residential use policy is implemented when it comes to storage space.
FHA rules on non-residential portions of the property are clear. “Any nonresidential use of the property shall be subordinate to its residential use and character.” The FHA is basically saying the property is meant for someone to live in as a dwelling, and that business use of the home can’t take over the property. That’s indicated by this language in the FHA rulebook, which states “A property, any portion of which is designed or used for nonresidential purposes, is eligible only if the type and extent of the nonresidential use does not impair the residential character of the property.”
To put it another way, you can’t install a car repair bay in the living room or convert the kitchen into a bar and grill.
The FHA rulebook also closes a seeming loophole with regard to storage areas. Residential storage seems to have its own characterization based on this reading from the FHA rulebook; “Areas designed or used for nonresidential purposes shall not exceed 25 percent of the total floor area. Storage areas or similar spaces which are integral parts of the nonresidential portion shall be included in the total nonresidential area.”
This basically implies the homeowner can’t try to claim intent to use business-related storage space as a personal-use area; it’s up to the appraiser to identify business storage as opposed to typical residential storage areas including basements, cellars and sheds.
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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