September 21, 2017
Can I get an FHA loan for a mixed use property? Many borrowers want to know if the building they want to buy is still eligible for an FHA loan in spite of zoning issues, design, or other factors that render the home a combination of a residence and non-residential purposes.
What do FHA home loan rules in HUD 4000.1 say about such transactions?
To begin, the FHA defines what it deems to be “mixed use property”:
“Mixed Use refers to a Property suitable for a combination of uses including any of the following: commercial, residential, retail, office or parking space. Mixed Use one- to four-unit Single Family Properties are eligible for FHA insurance” with certain restrictions in place. It’s important to note that FHA loan rules in this area do not specifically address zoning issues-that is something left to state/local agencies.
The residential nature of the home primary consideration for the property to be purchased with an FHA mortgage. Any non-residential use must be “subordinate” to the residence. FHA loan rules specify that a minimum of 51% of the entire square footage of the home must be residential in nature.
Furthermore, any non-residential use of the property cannot affect the health and safety of the occupants. If that sounds vague and non-specific, that’s because the rule is not intended to list out each and every scenario deemed acceptable or unacceptable.
That means it will be up to the lender to decide, at his or her discretion, what is an acceptable use of the property outside the 51% residential minimum requirement. However, in addition to the rules above, the FHA has set down restrictions on what kinds of specific non-residential operations cannot be allowed under the FHA home loan program.
In general, FHA mortgages are not allowed for the following non-residential purposes:
-boarding houses
-hotels, motels and condotels
-tourist houses
-private clubs
-bed and breakfast establishments
-other transient housing
-Vacation Homes
-fraternity and sorority houses
Some of the above are technically residential in nature, but not under the spirit of the FHA loan program, which is intended for owner-occupiers to purchase homes as a primary residence.
You may find that state law, local ordinances, and other rules not found in HUD 4000.1 may factor into this aspect of buying a property. This is true of many aspects of FHA home loans and mortgage loans in general. Ask a loan officer how these rules and applicable ordinances in your area may apply.
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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