February 27, 2017
What kinds of property types can be purchased with an FHA mortgage loan? It’s a simple question, but there are some occasional misconceptions about FHA requirements for single family homes that borrowers should know about as they plan their mortgage.
There are rules on eligible property types that can be purchased with an FHA mortgage loan. These rules are found in HUD 4000.1, and include the following guidance to the participating FHA lender:
“FHAs programs differ from one another primarily in terms of what types of Properties and financing are eligible. Except as otherwise stated in this SF Handbook, FHAs Single Family programs are limited to one- to four-family Properties that are owner-occupied Principal Residences.”
The phrase, “owner-occupied principal residences” is an important one-FHA mortgage loan rules include an occupancy requirement which states the borrower must intend to occupy the home as the primary residence, normally within two months of the closing date.
HUD 4000.1 also has guidelines on specific property types that can be purchased. “FHA insures Mortgages on Real Property secured by:
detached or semi-detached dwellings
Manufactured Housing
townhouses or row houses
individual units within FHA-approved Condominium Projects”
Manufactured homes may include mobile homes with a permanent foundation, modular housing, etc. Any property to be purchased with an FHA mortgage loan must be classifiable as “real property” for tax purposes. FHA loans don’t get approved for property that will not be permanently fixed to an approved foundation, so recreational vehicles and houseboats don’t qualify.
FHA single-family home loans are not possible for the following list of ineligible property types:
hotels, motels and condotels
bed and breakfasts
commercial enterprises
boarding houses
tourist houses
private clubs
any other transient housing
vacation Homes
fraternity and sorority houses
Basically, the residential nature of the property is key-the borrower is permitted to purchase a mixed-use property as long as the residential nature of the building overall is not compromised and the non-residential use takes up no more than 49% of the total floor space of the home according to page 142 of HUD 4000.1.
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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