June 1, 2017
FHA home loans are intended for owner-occupiers. The FHA loan occupancy requirement states that the borrower must begin using the home purchased with an FHA loan within a specified time after closing (usually within 60 days) and for a minimum of one year.
But FHA loan rules also permit owner-occupiers to buy multi-unit properties. For multi-unit homes, the borrower must occupy at least one unit but is free to rent out the unused spaces in the home to others. FHA loan rules limit the number of units to four in these transactions.
If a borrower intends to apply for an FHA loan for a home that has multiple units, it may be tempting to try to convince the lender to factor in any potential income from such rental as part of the applicant’s debt-to-income ratio. Is this permitted?
There is no single answer for this question because much depends on whether or not the applicant has experience as a landlord or a history or receiving rental income. Multi-unit properties must, like all homes to be purchased with an FHA mortgage, meet FHA minimum standards and pass an FHA appraisal.
This appraisal is NOT a home inspection and does not guarantee that a home is defect-free. All FHA borrowers, potential landlords or not, should expect to pay for the optional (but critically important) home inspection to get a much more informed view of the home’s condition.
Multi-unit properties to be purchased with FHA loans are subject to the usual FHA minimum standards. Borrowers should expect to pay for the appraisal, negotiate with the seller over the cost of any required corrections or repairs that might be required as a result of the appraisal, and anticipate the expense of any required compliance inspections.
Basic FHA down payment and credit requirements are the same for single-unit and multi unit properties alike. However, lender standards may vary depending on the lender, so it is important to ask how FHA loans for multi-unit properties may differ with a given lender than from single-family units.
State law and other requirements may factor in, especially for those borrowers who anticipate becoming landlords after the loan has closed.