Did You Know?

FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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FHA Loan Has Strict Rules for Rentals

FHA Loan Has Strict Rules for Rentals
FHA loans are primarily designed to help individuals and families purchase homes for use as their primary residences. Rules for these loans generally discourage their use for investment properties or rentals. However, there are certain circumstances under which they can be used for rental properties, but the rules and requirements are strict.

Owner-Occupancy Requirement

FHA loans require borrowers to certify that they intend to occupy the property as their primary residence. This means that the borrower must live in the home as their main place of residence for a significant portion of the year. FHA loans are not intended for investors or for purchasing vacation homes or second homes.

One-Year Occupancy Requirement

FHA borrowers are generally required to occupy the property they purchase for at least one year after the loan's origination. Attempting to use this to purchase a property with the intent to rent it out immediately would likely be considered a violation of the loan terms.

Exceptions for Multi-Unit Properties

FHA loans can be used to purchase multi-unit properties (up to four units) under specific conditions. In the case of multi-unit properties, the borrower must live in one of the units as their primary residence for at least one year. The borrower can rent out the remaining units to tenants after meeting the owner-occupancy requirement. FHA borrowers must also meet certain financial qualifications to ensure they can handle the responsibilities of being a landlord.

Rental Income Considerations

FHA lenders may consider rental income from the property when evaluating a borrower's ability to qualify for the loan. Rental income can be used to offset the borrower's housing expenses and may help them meet debt-to-income ratio requirements.

Refinancing Rental Properties

FHA loans can be used to refinance existing rental properties under certain conditions.
The borrower must provide evidence of their current rental income and meet FHA requirements for creditworthiness and financial stability.

Intent to Defraud

Attempting to deceive the FHA or the lender by falsely certifying owner occupancy when the borrower intends to use the property as a rental or investment property can lead to severe consequences, including the potential for legal action.

It's essential to be transparent and honest with your lender when applying for an FHA loan. If your intention is to use the property as a rental or investment, you should explore other loan options specifically designed for such purposes, such as conventional investment property loans or commercial real estate financing. Violating FHA owner-occupancy rules can result in the loan being called due in full or other legal consequences. Always consult with a qualified mortgage professional to understand the specific requirements and options available to you based on your real estate goals.


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FHA Loan Articles

When not to Consider Refinancing a Home

There are plenty of reasons to delay plans to refinance a home. One reason has made big headlines. When borrowers face higher interest rates than originally approved for, that is a good reason to wait to refinance.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

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