August 21, 2015
FHA loan rules on the nature of “owner-occupied” residences state that a single-family mortgage loan guaranteed by the FHA is only for borrowers who want to live in the home they buy. The “owner occupier” nature of FHA home loans is secured by rules in HUD 4155.1 designed to prevent investors from using this type of FHA mortgage.
You’ll find the guidelines for owner-occupied residences in Chapter Four, Section B, which states:
“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 borrowers principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year.”
To supplement this, Chapter Four also includes some guidelines for lenders on the possibility of getting a second FHA home loan for another property–a practice generally discouraged by the rules, but permitted in certain cases where the borrower may have a bone fide reason for needing another home.
“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.” Chapter Four adds that the FHA will not permit a new 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 rules go even further, adding those who may own a hope jointly with another borrower. “Any person individually or jointly owning a home covered by an FHA-insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations” such as a relocation (terms defined by the FHA), increase in family size, or even situations where a co-borrower vacates a jointly-owned home for reasons of divorce, separation, etc.
Chapter Four has a table listing all the exceptions, which includes, but is not limited to, the situations described above. At the end of that section, the “no investors” caveat is repeated in no uncertain terms:
“Under no circumstances may investors use the exceptions described in the table above to circumvent FHAs ban on loans to private investors and acquire rental properties through purportedly purchasing ‘principal residences.'”
For more information on what may be possible in a given situation, discuss your needs with a loan officer.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It’s designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It is easy 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
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: