Can I get an FHA single family loan for a multi-unit home? Some borrowers get confused by the wording in the name of the FHA Single Family Home Loan program. It’s easy to assume that FHA single family mortgages are for one-bedroom houses, but that is definitely not the case.
FHA loans are approved for homes that feature as many as four living units-a four unit property can definitely be financed with an FHA loan assuming the borrower is qualified to be approved for the mortgage.
One-to-four unit properties purchased with FHA mortgages must be the primary residence of the borrower-you must agree to occupy the home purchased with an FHA mortgage loan usually within approximately two months after loan closing (unless the borrower makes other arrangements with the lender that meet FHA standards).
Why purchase a multi-unit property with an FHA mortgage? Some borrowers simply need the space, but others intend to live on the property but rent out the unused living units. This is acceptable under the FHA loan program.
Some want to know if they can buy a home with an FHA loan and use projected rental income from the new property as verified income. The main issue in such cases involves whether or not the applicant has prior experience as a landlord, can show a track record in that aspect of being home owner, etc.
From HUD 4000.1:
“Where the Borrower has a history of Rental Income from the subject since the previous tax filing, the Mortgagee must verify and document the existing Rental Income by obtaining the Borrower’s most recent tax returns, including Schedule E, from the previous two years. For Properties with less than two years of Rental Income history, the Mortgagee must document the date of acquisition by providing the deed, Closing Disclosure or similar legal document.”
State law and lender standards may also play an important part in whether or not projected rental income may be used to qualify for the mortgage. Tax documentation and other paperwork may be required in order to verify past rental income and other details where applicable.
In situations where the borrower has little or no history or rental income, FHA loan rules instruct the lender:
“To calculate the Effective Income from the subject Property where the Borrower does not have a history of Rental Income from the subject Property since the previous tax filing, the Mortgagee must use the lesser of… the monthly operating income reported on Freddie Mac Form 998; or 75 percent of the lesser of…fair market rent reported by the Appraiser; or the rent reflected in the lease or other rental agreement.”
All this is subject to lender standards, where applicable. Talk to a loan officer to determine whether or not you would be able to apply projected rental income as part of your gross income.