There are a few misconceptions about FHA loans when it comes to eligible property types and purchasing mixed-use property. The FHA Single Family Home Loan Handbook, HUD 4000.1, has some instructions for the lender in these areas that are good to know going into the house hunting process.
FHA Loans For Mixed-Use Property
There are FHA mortgages available to purchase mixed-use property as long as that property meets the right FHA criteria; it must be primarily residential in nature, and non-residential use of the home must not overwhelm the property.
HUD 4000.1 defines “mixed use” property as follows:
“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, provided:
-a minimum of 51 percent of the entire building square footage is for residential use; and
-the commercial use will not affect the health and safety of the occupants of the residential Property.”
Note the floor space requirement, which is fairly specific. Don’t forget that FHA loan rules are not the only ones that may apply in these transactions. Your lender’s standards and other requirements may also be a factor.
FHA Home Loans For Certain Property Types
FHA loans are technically available for construction loans, for manufactured housing or mobile homes, condos, town homes, and other properties. But there are two important things to keep in mind.
One is that the lender may or may not offer mortgage loans on some or all of the properties mentioned above. The other is that FHA loan rules also include a list of properties that will never be appropriate for an FHA mortgage.
Commercial enterprises cannot be purchased with an FHA mortgage, nor can condohotels, bed-and-breakfasts, or transient housing. There are no FHA loans available for frat or sorority houses, and you cannot purchase a vacation house with an FHA loan. The FHA loan program is intended for owner/occupiers who want to buy or refinance a principal residence with an FHA home loan.
FHA Home Loans For Multi-Unit Properties
FHA loans and refinance loans can buy or refinance single-unit homes, or properties with as many as four living units. Borrowers who buy multi-unit properties are required to occupy at least one living unit, but are allowed to rent out the unused living units and collect income as landlords.
Whether or not you are permitted to use projected rental income as part of the debt ratio calculation for loan approval depends on several factors. You will need to discuss your plans with your loan officer to see what may be possible and what paperwork may be required to review the projected income.