FHA Loans for Multi-Unit Properties
Those who buy multi-unit properties are required to live in the home as their primary residence just like FHA mortgages for single-unit homes, but the borrower who purchases a property with up to four units may rent out the unused living spaces.
But there are restrictions for borrowers who want to do this.
The first restriction is the occupancy rule-you must live in one of the units as your primary residence as a condition of FHA loan approval. Another restriction involves the nature of the rental agreements you make as the owner.
Rentals in multi-unit properties must be homes for others, not hotel rooms. FHA loan rules allow the borrower to act as a landlord in the unused units, but the definition of “landlord” in this case is quite traditional. As in, the landlord rents out a living unit in the home to a tenant who is staying for an agreed-upon amount of time specified in the lease, usually a minimum of one year traditionally speaking.
FHA loan rules do not state how long your rental contract or lease arrangement must be except for one important aspect-the nature of your rental cannot be “transient housing” for less than one month.
The same prohibition that prevents the borrower from buying a home with an FHA mortgage with the intent to open a bed and breakfast applies to social sharing rentals such as Air BnB, or other short-term guest rental type arrangements.
Business Use of the Home
Some borrowers want to use an FHA loan to buy a multi-unit property with an eye on opening a business in one of the units. This is also permitted, but with certain restrictions. Non-residential use of the home is limited to 49% of the floor space and that use cannot interfere with the residential nature of the property.
In some cases, FHA mortgage loans may not be offered by your participating lender except for a certain number of living units. You may find, for example, that some FHA lenders will approve an FHA One-Time Close construction loan to build a home from the ground up, but only for single-unit homes.
It’s best to shop around for a participating FHA lender who can work with your needs, especially if you want to buy a multi-unit home to live in, and rent out the unused living spaces. State law, lender standards, and other factors will apply so it is recommended to discuss the angles at length with your loan officer.
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