October 1, 2014
FHA loan rules for single family home loans include an occupancy requirement. This requirement is designed to encourage single-family borrowers and exclude investors from using single-family FHA mortgage loans to purchase investment property.
Why? The intent of the single-family home loan program is to help eligible borrowers get into affordable housing using a low-cost, lower-than-conventional loan interest rate. These rates are not intended to help investors buy property for non-occupying rental or outright sale.
What are the FHA loan rules for occupancy? The full explanation of the rules can be found in HUD 4155.1 Chapter Four Section B, which starts off by defining what a “principal residence” is. A home purchased with a VA mortgage is required to be used as the principal residence, so it’s good to know what the FHA considers as such before committing to the loan.
Chapter Four defines it as follows:
“A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.”
What does Chapter Four say about occupancy of the home after purchase?
“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 borrower’s principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year.”
The last line is very important–continued occupancy for 12 calendar months is required as a condition of the FHA single-family home loan.
Does this mean the borrower cannot apply for another FHA home loan? Chapter Four says IN GENERAL you cannot have more than one FHA loan per borrower. There may be an exception depending on circumstances, but the borrower would need to work with the lender and discuss the specifics of those circumstances.
From Chapter Four:
“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. FHA will not insure a 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.”
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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