April 18, 2017
A reader asked us a question about FHA loans and “the 100 mile rule”. “I am currently looking to purchase a home with FHA financing 5 miles from my current home in California. The current home I own is secured with a conventional loan. I would like to rent this home out and buy a larger home and finance it FHA because I dont have very much saved up for a larger down payment. Does the 100 mile rule apply to me?”
The reader is asking in response to a post we made earlier this year about military FHA borrowers and occupancy rules for FHA loans. This quote from that original post, referencing FHA loan rules in HUD 4000.1, seems to be the issue of most concern for the reader:
“The Mortgagee must obtain a copy of the Borrowers military orders evidencing the Borrowers Active Duty status and that the duty station is more than 100 miles from the subject Property. The Mortgagee must obtain the Borrowers intent to occupy the subject Property upon discharge from military service, if a Family Member will not occupy the subject Property as their Principal Residence.
We aren’t sure why the reader might think that the rule quoted above might apply to their particular transaction, but in short, the rule mentioned above applies specifically to military personnel who want to purchase property with an FHA loan but due to military duty requirements cannot occupy the property as their primary residence.
Non-military FHA borrowers who want to purchase homes with FHA loans are expected to comply with the FHA occupancy requirement, which states that the borrower agrees (as a condition of loan approval) to use the property as her or his primary residence after the loan closes.
Usually the borrower has 60 days after closing to do so unless other arrangements have been made with the loan officer. FHA borrowers are required to use the property as the primary residence for at least one year after the loan has closed.
Borrowers who have an existing FHA mortgage but wish to buy a new home with an FHA loan due to certain approved circumstances (changes in family size, job relocation, etc.) may be approved to get a second FHA loan depending on circumstances, lender standards, state law, and other factors that are usually handled on a case-by-case basis.