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FHA Home Loan Rules For Mixed-Use Properties

FHA Home Loan Rules For Mixed-Use Properties

FHA Single-Family home loans are designed for those who want to be owner-occupiers. Those looking for affordable housing often turn to FHA mortgages to buy condos, mobile homes, town houses, and typical suburban houses.

But there is also the potential to purchase mixed-use properties with an FHA mortgage as long as those homes meet FHA standards, lender requirements, local zoning, and local building code requirements.

What are the rules for buying a mixed-use property? To start, the nature of the real estate must be primarily residential in nature. The non-residential use of the home cannot detract from its’ use or status as a dwelling.

The FHA Single Family home loan handbook, HUD 4000.1, starts in this area by formally defining what it considered to be a mixed-use property and the restrictions on non-residential use. From HUD 4000.1:

“Mixed-Use refers to a Property suitable for a combination of uses including any of the following: commercial, residential, retail, office or parking space.”

This section also informs the lender that mixed Use one- to four-unit Single Family Properties are eligible for FHA home loans if “a minimum of 51 percent of the entire building square footage is for residential use” and the non-residential use does not affect health or safety of the occupants.

Mixed-use properties purchased with FHA mortgages can include:

  •  Detached or semi-detached dwellings;
  •  Manufactured housing;
  •  Townhouses or row houses;
  •  Individual units within FHA-approved Condominium Projects;
  • Qualifying individual condo units in projects that are not on the FHA approved list.

FHA appraisal rules still apply for mixed-use properties, and local building code must be satisfied as well. The FHA does not override state or local regulations. Both FHA requirements and state/local ordinances must be satisfied.

The FHA and HUD don’t keep copies of the local code requirements, so any borrower who needs to know if a certain feature of a mixed-use property is acceptable must first consult the local authority to make sure it meets those rules.

If not, the FHA home loan cannot move forward unless the property can be brought into compliance.

That goes for building code, zoning issues, water supply or local utility options, septic versus sewer, etc.

What about properties that the FHA will not allow to be purchased with an FHA mortgage? Mixed use properties must not include any of the following uses:

  •  Boarding houses
  •  Hotels and motels
  •  Tourist houses
  •  Bed and breakfast establishments
  •  Transient housing
  •  Vacation Homes
  •  Fraternity and sorority houses

What do all of those property types above have in common? They are a combination of occasional-occupancy operations and “transient housing” type businesses renting out living space for 30 days or less.

Borrowers who want to purchase investment properties or properties that meet these restrictions will find FHA loans to be very helpful for their lower down payment requirements and more competitive interest rates. Ask a loan officer about the mixed-use purchase option and what local considerations may apply to your transaction.

Joe Wallace - Staff Writer

By Joe Wallace

October 4, 2019

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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