Rules for FHA Owner-Occupied

An FHA mortgage can make it easier to buy a home.
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The Federal Housing Administration mortgage program is administered by the U.S. Department of Housing and Urban Development. The FHA provides insurance on qualified mortgages, which allows the borrowers to obtain lower down payments and interest rates, plus more liberal qualifying requirements. FHA mortgages allow more people to buy homes, which is beneficial to the public and the overall economy.

Property Requirements

A major eligibility requirement for obtaining a FHA mortgage is that the property being purchased has to be owner occupied. This simply means that the borrower has to actually make the property his residence and not just be an investor. However, this does not mean the property has to be a single family unit only. The FHA will qualify a property which contains up to four residential units. A special legal form, an Occupancy Declaration, is required to be signed and submitted as part of the mortgage application for properties with three to four units.

Owner Occupancy Requirements

The main FHA rule to satisfy the owner occupancy requirement is that the borrower make the property his principal residence, meaning he will regularly live there for the majority of the year. A seasonal or vacation property would not meet this requirement. The borrower must physically take occupancy within 60 days after the mortgage loan closes. The borrower must maintain this occupancy on a continuous basis for at least one year. FHA will allow some exceptions to this rule only for reasons of hardship.

Residence and Investment

The primary purpose of the owner occupancy rule is to prevent investors from utilizing the FHA mortgage program and its benefits. However, the FHA will give a mortgage for a property with up to four residential units, provided the borrower makes at least one of these units his home. This provides the borrower with the opportunity to use the FHA program to obtain a residence and an investment at the same time. This also allows the borrower to use the rental income from the other units towards the mortgage payments and thus can be very beneficial financially.

Special Provisions

The owner occupancy rule is satisfied if at least one person who signs the mortgage and loan agreement moves into the home. Thus, there can be co-borrowers on the loan who do not have to occupy the property. While the property's building is limited to four units, the size of the property's land is not limited. Planned Unit Development residences and FHA approved condominiums are also eligible for FHA mortgages and have the same owner occupancy requirements.

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