October 16, 2019

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FHA Requirements, Occupancy, and Business Loans

147Here’s an example of a question we get fairly often about the intended purposes of FHA mortgages:

“I am interested in investing in properties I intend to flip and rent out. I already own a primary residence, can I use a FHA loan to buy a second home for business?

FHA loan rules are specific when it comes to flipping a home, starting with the FHA’s definition of the practice as found in HUD 4000.1:

“Property Flipping is indicative of a practice whereby recently acquired Property is resold for a considerable profit with an artificially inflated value, often abetted by a Mortgagees collusion with an Appraiser…Property Flipping refers to the purchase and subsequent resale of a Property in a short period of time..”

We are not implying that the reader questions we get on this subject include the desire to have “collusion with an Appraiser”, but rather that this is the FHA’s view of flipping. FHA loan rules are designed to discourage flipping in general, from the purchaser’s end of the transaction:

“A Property that is being resold 90 Days or fewer following the sellers date of acquisition is not eligible for an FHA-insured Mortgage”. As you can see that rule does NOT affect the situation implied in the reader’s question-the buyer of a home is free to sell his or her property without restriction. However, there’s another FHA loan rule standing in the reader’s way-the FHA occupancy policy.

Single-family FHA mortgage loans have an occupancy rule which requires at least one person obligated on the mortgage to occupy the property as the borrower’s primary residence, normally within 60 days of loan closing. So using an FHA single-family home loan to purchase a property to rent out as a non-occupying landlord is not possible.

A buyer who purchases a multi-unit property may live in one of the units and rent the others out, but occupancy is a condition of FHA loan approval and cannot be gotten around. It’s a standard FHA requirement.

Bruce Reichstein - Staff Writer

By Bruce Reichstein

October 20, 2016

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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FHANewsBlog.com was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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