The FHA loan allows eligible borrowers to buy a home with just 3.5% down. It has flexible guidelines and low-interest rates. One area it is not flexible in, however, is its residency requirements. The program is strictly for owner-occupied properties. Just how does the FHA regulate this? We take a look below.
The FHA makes it very simple – you must occupy the property in order to secure FHA financing. Just what does that mean though? In the eyes of the FHA, you must live in the home a ‘majority of the year.’ You must also move into the home within 60 days of the closing date. You must live in the home continuously for at least one year. This is what you state you will do when you sign the closing documents.
If you have any type of hardship and must move within the 12-month period, you must discuss it with the FHA. They generally provide exceptions, but it’s best to have their approval rather than taking matters into your own hands.
Getting Around the FHA Residency Requirements
Generally, FHA loans are not for investment properties. They are to help low to middle-income borrowers secure financing for a home they can reside. However, there is no rule stating the type of property you can buy. In other words, it doesn’t have to be just a single-family property. You can buy a multi-unit property as long as you live in one unit.
Say for example, you buy a 4-unit property. You qualify for the mortgage and you intend to live in one unit. This leaves 3 unoccupied units. You are free to rent those units out and make a profit on them. You cannot use the rental income to qualify for the loan, but if you can qualify without it, you can get around the residence requirements.
Co-borrowers and the FHA Loan
Now what happens if you have a co-borrower? Do you both have to occupy the property? According to the FHA rules, only one of you must occupy the property. This can help you secure the loan without running the risk of violating the residency requirements.
Exceptions to the Rule
Just like most other government programs, there is an exception to the rule as far as the residency requirements. If you find that you are being relocated to a new job that is not within reasonable commuting distance, you can talk to the FHA. A reasonable distance is usually 50 miles or less. If you are relocated more than 50 miles away, you may be able to secure another FHA loan without selling your current home.
A couple of other reasons you may secure an exception include:
- Increasing your family size – If your initial house was suitable for 2 people and you now have 3 children, you can plead to the FHA for an exception to buy a bigger home
- Divorce – Getting divorced usually means one partner moves out; if you are the borrower on the loan, you may get an exception from the FHA to secure another loan
Each situation is up to the discretion of the FHA, though. You’ll need to provide as many details as possible in order to secure approval for your situation.
Overall, you should plan to live in the home you buy with FHA financing. As long as you live there for 12 months, you satisfy the requirement. If you want to buy another home with FHA financing, you’ll have to sell the current home and pay off the FHA loan. If you have special circumstances, however, you may get around the residency requirements. It’s in your best interest to be honest with your lender to make sure you are following the rules as they are written and avoiding the violation of any FHA rules.