June 24, 2015
Recently we answered a reader question in the comments section about the nature of FHA single-family home loans. The reader wanted to know if it was possible to get an FHA home loan on a home to be used as a rental property or as a guest house for visitors, etc.
The short answer to this question is no. FHA loans are designed for those who intend to purchase a home and move into it when the loan closes. The borrower is required to occupy the home as his or her personal, primary residence as a condition of loan approval. This would prevent borrowers from purchasing the home to use as a rental property, vacation home or guest house.
HUD 4155.1 Chapter Four Section B spells it out in black and white: “FHAs single family programs are limited to owner-occupied principal residences only”. The FHA even provides a definition of the term “principal residence” for further clarity:
“A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.”
And finally, the FHA provides the following additional guidance in Chapter Four, explaining what should happen once the loan closes.
“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.”
Furthermore, “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.” These rules in Chapter Four of HUD 4155.1 are expected to be replaced with a new version of the rulebook due out later in 2015. Until then, current references to HUD 4155.1 still apply.
As you can tell from these rules in Chapter Four, the FHA has anticipated the “rental property/guest house/vacation home” issues and doesn’t offer any loopholes to help borrowers skirt the owner-occupier requirement. Those who want to purchase homes they don’t intend to personally occupy would need to explore their conventional mortgage loan options instead.
Do you have questions about FHA home loans? Ask us in the comments section.
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.
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