March 7, 2021

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FHA Home Loan Rules For Second Homes, Vacation Homes

FHA Mortgage Loan Issues: "Identity Of Interest"

Investing in a vacation home is tempting for many. Some borrowers don’t want a vacation home but need a second home because of changes in job requirements, family size, or other factors. Do borrowers have the option of purchasing a vacation home or a second home with an FHA mortgage?

FHA loan requirements for loan approval include a rule stating that the home be used as the primary residence; occupancy is a condition of loan approval for an FHA single family forward mortgage loan. You must be plan to use the house you buy with the FHA mortgage as your main address, and in cases where there’s an increase in family size or a change in job location.

But a vacation property? Not permitted under the rules in HUD 4000.1

Those who purchase a home with a co-borrower who will use the home as the primary residence will find there is nothing in HUD 4000.1 that says the other borrowers cannot use the property as an occasional occupancy property as long as one borrower obligated on the mortgage note uses the home as the full-time residence. But using a non-occupying co-borrower does have some things you should consider before you commit.

The Non-Occupying Co-Borrower

Those who are obligated on the mortgage but don’t live in the home full-time are known as non-occupying co-borrowers; your down payment requirements may vary depending on the nature of the relationship of the borrowers and other factors.

Ask your lender how the home loan is affected when the non-occupying co-borrower is a family member or when the number of living units is greater than a single-unit property. In some cases a higher down payment is required, in others the maximum financing is available for those who financially qualify.

The borrower who won’t live in the home full-time is known as a non-occupying co-borrowers and your home loan down payment requirements may vary depending on the nature of the relationship of the borrowers and other factors.

FHA loan rules specify higher down payments and different loan-to-value ratios when there is a non-occupying co-borrower, but there are exceptions depending on circumstances. Be sure to ask

Ask your lender how the home loan is affected when the non-occupying co-borrower is a family member or when the number of living units is greater than a single-unit property.

In general, government-backed home loan programs list occupancy as a condition of loan approval. If you start your journey toward homeownership knowing this in advance you can avoid hassles and wasted time during the house-hunting process. If you are looking for a home that won’t be your primary residence but you do want to purchase a home, keep in mind that the occupancy issue is an important one.

Don’t forget that if conventional lenders are part of your house-hunting plans, you’ll want to shop around–conventional lenders are not standardized and will have varying requirements. You should know whether occupancy is an issue before committing to a financial institution.

Joe Wallace - Staff Writer

By Joe Wallace

December 18, 2020

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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