February 14, 2019
Some reports in 2019 indicate more married couples living with roommates than ever; since the mid-90s the number of couples who live with roommates has doubled and many people are considering renting out a spare bedroom to cover housing costs.
If you are thinking about a mortgage loan as a first-time home buyer and wondering how you might be able to afford the loan long-term, consider using an FHA mortgage loan to purchase a property with more than one living unit and renting out the unused unit.
FHA home loans are possible for first-time buyers (and all other financially qualified applicants) with homes up to four units, making your options to rent out a spare bedroom very attainable.
There is no increase the minimum FHA loan down payment requirement regardless of how many units up to four you wish your home to have-you will still be required to make a low 3.5% down payment on a single-unit property or the maximum four-unit home.
You aren’t the only house hunter contemplating a multi-unit MLS listing as an option-your real estate agent may point out that a national trend in homeowners as landlords is popular in places like San Francisco, San Jose, San Diego, Los Angeles, and Oakland, California; further north you will find similar trends in Seattle, Washington; Salt Lake City, Utah, Portland, Oregon and elsewhere. Even in Washington D.C., people are sharing their living spaces with roommates.
An FHA mortgage loan is intended strictly for owner-occupiers in this context, so don’t plan to buy a home with four units that you don’t intend to personally occupy as your main residence. This occupancy rule is one of the conditions of FHA home loan approval.
If you have prior experience as a landlord you may even be able to project potential rental income as part of your verifiable income, but this aspect of FHA home loan approval will vary depending on the lender, state law, and other variables.
And don’t forget that you cannot use a home purchased with an FHA mortgage loan for the purposes of “transient occupancy” type rentals such as Air B-n-B. FHA loan rules are quite specific about rentals in this way-your tenants must be renting for 30 days or more as with a typical landlord/tenant setup rather than as a guest house.
Ask your lender about the FHA multi-unit home option with an FHA new purchase mortgage, an FHA rehabilitation loan, or even an FHA One-Time Close construction loan.
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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