FHA Loans for Multi-Unit Homes

July 30, 2024

FHA mortgages are designed primarily for owner-occupiers who plan to live in the home they purchase as their main address or primary residence.

A rule commonly called the FHA loan occupancy requirement dictates this, and in most cases, FHA borrowers must occupy the property within 60 days of closing.

Did you know that FHA loans can be used to purchase multi-unit properties? The same occupancy requirements apply but this opens exciting opportunities for those interested in becoming landlords or generating rental income, as long as they also plan to live in at least one of the units on the property.

Occupancy Requirements for Multi-Unit FHA Loans

• Owner-Occupancy
  Even with a multi-unit property, the borrower must live in one of the units as their primary residence according to the rules in HUD 4000.1.
• Rental Income Potential
  The remaining units in the property can be rented out, providing a potential income stream.
• Four-Unit Limit
  FHA loan rules restrict the number of units to a maximum of four.

Income Considerations for Multi-Unit FHA Loans

Many potential borrowers wonder if projected rental income can be factored into their debt-to-income ratio, potentially improving their eligibility. The answer is: it depends.

• Experience Matters
  Do you have a record as a landlord with a rental income history? Participating FHA lenders might consider this when evaluating your application.
• Novice Landlords
  If you're new to real estate investing, lenders may hesitate to rely on projected rental income. A co-borrower with relevant experience may help.

FHA Appraisal and Property Standards

All properties financed with FHA loans, including multi-unit homes, must meet specific standards:

• FHA Minimum Property Standards
  The property must meet minimum health, safety, and structural requirements.
• FHA Appraisal
  An appraisal is required to determine the fair market value and make sure the property meets FHA standards.
• Home Inspection
  While not mandatory, a home inspection is highly recommended to identify any potential issues not covered by the appraisal. Don’t skip this step.

Additional Considerations for Multi-Unit FHA Loans

• Down Payment and Credit Requirements
  The basic FHA down payment and credit score requirements apply to single-unit and multi-unit properties.
• Lender Variations
  Specific lender standards for multi-unit FHA loans may vary, so be sure to shop around and compare terms.
• State and Local Regulations
  Landlords must adhere to all applicable laws governing rental properties.

Is an FHA Loan Right for Your Multi-Unit Property?

FHA loans can be an option for future landlords or those looking to offset their mortgage payments with rental income.

If you're considering an FHA loan for a multi-unit property, talk to a participating FHA lender. You may be surprised at your options.

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