FHA loans, backed by the Federal Housing Administration, are a popular mortgage option for homebuyers, especially first-time buyers, due to their low down payment requirements and more lenient credit criteria. However, they are designed for owner-occupied properties, primarily as a means to help individuals and families secure a home for themselves. Using an FHA loan for a rental property can be a bit more complicated, but it’s essential to understand the guidelines:
Primary Residence Requirement:
FHA loans have a primary residence requirement. This means the property you purchase with an FHA loan must be your primary place of residence. It should be the home where you intend to live and not one that you plan to rent out exclusively.
Intent to Occupy:
To qualify for an FHA loan, you must have a genuine intent to occupy the property as your primary residence. While the FHA does not require you to live in the property indefinitely, you should be ready to move into it within 60 days of closing the loan.
Exceptions for Multifamily Properties:
FHA loans may be used for multifamily properties (two to four units), and you can rent out the other units while residing in one of them. This allows borrowers to generate rental income to help cover their mortgage expenses. However, the property should still serve as your primary residence, and you should meet the occupancy requirements.
Proving Primary Residence Status:
Lenders may request documentation to verify your intent to occupy the property. This can include utility bills, driver’s licenses, voter registration, and other evidence that demonstrates your primary residence status.
It’s crucial to be honest and accurate in your FHA loan application. Misrepresenting your intent to occupy the property as your primary residence can have serious consequences, including the potential for legal action.
Consider the Implications:
If you intend to use an FHA loan for a multifamily property and plan to rent out some of the units, it’s important to carefully evaluate the financial aspects. Rental income can help offset your mortgage costs, but you should also be prepared for the responsibilities of being a landlord.
Exploring Investment Loans:
If your goal is to purchase a property solely for rental income or investment purposes, an FHA loan may not be the best fit. In such cases, you should consider other loan options designed for real estate investment, like conventional investment loans or specialized rental property financing.