Owner-Occupier Single Family Home Loans
Borrowers may be interested in using FHA mortgage loans on guest homes, summer properties, and more. But is this permitted under the FHA Single-Family Home Loan program?
The short answer is no--FHA single family mortgage loans are specifically for borrowers who intend to purchase a home and occupy it as the primary residence when the loan has closed. What’s more, FHA borrowers are required to occupy the home as the primary residence as a condition of loan approval. This requirement is specifically designed to prevent borrowers from purchasing the home to use as a rental property, vacation home or guest house.
You can find this in writing in FHA loan regulations that govern single family home loans. HUD 4155.1 Chapter Four Section B spells it out, with no ambiguity, stating, “FHA’s single family programs are limited to owner-occupied principal residences only”. For additional clarity on this requirement FHA provides a definition of the term “principal residence”. The rules state:
“A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.”
There is even a specific guideline created that informs borrower and lender alike what must happen at loan closing time. “At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to be considered owner-occupied.”
The loan rules require a qualified FHA borrower “to establish bona fide occupancy in a home as the borrower’s principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year.”
As you can tell from these rules in Chapter Four, the FHA has anticipated the “rental property/guest house/vacation home” issues and doesn’t offer any loopholes to help borrowers skirt the owner-occupier requirement. Those who want to purchase homes they don’t intend to personally occupy would need to explore their conventional mortgage loan options instead.
The rules quoted here--Chapter Four of HUD 4155.1--are going to be replaced in late 2015 with a new version of the rulebook known as HUD 4001.1. Until the publication of the new rulebook, current references to the existing regulations apply. It’s likely that many areas of the FHA loan rules won’t change, but simply be “ported” over to the new rulebook, however some guidelines will change and take effect at dates specified by the FHA and HUD.
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