In a previous blog post, we discussed the FHA loan rules for purchasing multi-unit properties. It’s true that an FHA borrower can buy a home with as many as four living units.
It’s also possible to rent out the unused units in the home, but FHA loan rules do require at least one person obligated on the mortgage to occupy the home as the primary residence.
FHA home loans are generally for owner/occupiers only. You are permitted to rent out the unused living units in your new home, but those units cannot be rented out for periods less than 30 days, offer hotel-style services such as food, bellboy service, etc.
The rules for these issues are very clear, but what is to stop a borrower from purchasing a new home with an FHA loan and using it as an Air B-n-B, or other “transient housing” where occupancy is less than 30 days?
Some borrowers might wonder if it’s feasible to just purchase the home and do what they want to do in this regard, but FHA home loan paperwork requirements anticipate this.
Borrowers must sign a legally binding agreement as a condition of the FHA home loan stating they will not use the property for such short-term occupancy.
This legally binding document is known as HUD 92561, Borrower’s Contract with Respect to Hotel and Transient Use of Property. It states in part, “Sec. 513(a) of the National Housing Act, as amended, provides that as long as mortgage insurance is outstanding no portion of the housing covered by any such mortgage shall be used for transient or hotel purposes”.
Furthermore, the term “transient or hotel purposes” is defined in the document as follows:
(1) any rental for a period less than 30 days, or
(2) any rental if the occupants of the housing accommodations are provided customary hotel services such as room service for food and beverages, maid service, furnishing and laundering of linen, and bellboy service.”
The FHA Borrower agrees “that so long as any of the housing identified in the caption hereof or any part thereof is subject to a mortgage insured under the provisions of the National Housing Act, the Borrower, his/her successors and assigns, will not rent, offer to rent, permit the rental or permit the offering for rental of such housing or any part thereof for transient of hotel purposes.”
And finally, the document requires all parties to sign, “under penalty of perjury” the document attesting that such uses of the property purchased with an FHA mortgage will not happen.