October 8, 2018
Can I buy a rental property with an FHA mortgage? This is a question borrowers ask when they are considering trying to use the property they buy with their new mortgage to earn income or even help pay the mortgage itself. Is this possible under FHA home loan rules?
FHA Mortgage Loan Rules: You Must Occupy The Property You Purchase With An FHA Mortgage
Most FHA single family home loans include an occupancy requirement, which means if you intend to rent a property you purchase with an FHA loan, it must be a single-unit or multi-unit home that you intend to occupy.
FHA loans technically permit mortgages for properties with up to four living units.
Your participating FHA lender may or may not offer home loans for multi-unit properties, so it pays to ask before you commit to one financial institution or another.
FHA Home Loan Rules Do Permit Renting Out Unused Living Spaces
As long as the owner occupies at least one living unit in the home, she is free to rent out the unused units. FHA loan rules in HUD 4000.1 permit this and the borrower may (depending on circumstances and lender approval) be able to count the rental income in the amount of monthly income projected for debt ratio calculations or other purposes.
That will depend on the borrower’s ability to meet standards in this area including whether the borrower has prior experience as a landlord or property manager. Lender approval is also required.
FHA Single Family Home Loans Are Approved For Multi-Unit Properties, But Not Investment Properties
If you don’t intend to occupy the home you wish to buy with an FHA mortgage, the loan generally cannot be approved.
There is also an FHA list of properties you cannot purchase with an FHA mortgage including condohotels, bed and breakfasts, frat houses, or other intermittent occupancy type establishments.
FHA loans are possible for mixed-use property where some of the floor space is dedicated to non-residential use, but that use must be subordinate to the residential nature of the home and cannot exceed a specific amount of floor space.
In short, FHA mortgages are for properties that are primarily residential in nature, rather than for business. Lender standards, state law, and other variables will affect your home loan transaction; if you wish to be an owner/occupier and a landlord, discuss your goals with the lender to see what is possible and what’s required to successfully apply.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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