FHA loans are an attractive opportunity. These home mortgages have easier qualifying guidelines, and the minimum down payment is just 3.5% of the loan amount. Those easy terms appeal to both investors who want to buy a rental property and home buyers who intend to occupy the home themselves. However, only owner-occupants can qualify. The question, is how long do you have to live in a house with an FHA loan?
“The FHA loan is meant to help people who cannot save up a significant amount of money for a conventional loan,” explains Shawn Breyer, owner of Breyer Home Buyers, a property investment company in Atlanta.
FHA loans are insured through the Federal Housing Administration (FHA), a U.S. government agency. If you get this type of loan, you’ll have to pay for mortgage insurance as part of your monthly payment. The insurance reimburses part of the loan amount to your lender if you don’t repay your loan.
FHA occupancy requirements
If you get an FHA loan, you won’t be required to live in your home “forever,” but there are occupancy requirements to ensure that you’re not an investor at the time of purchase.
“The home must be occupied by the primary person on the loan,” Breyer says. There are two main occupancy rules:
- You must occupy the home as your principal residence within 60 days after you buy it.
- You must continue to occupy the home as your principal residence for at least one year after you buy it.
Your principal residence is defined as the home where you live most of the time. You can’t have more than one principal residence at the same time.
The key aspect is that the person whose name is on the loan documentation must be living in the property”
Other people can live in your principal residence with you, but they can’t be the only occupants without you. Those other people could be family members or roommates.
“The key aspect is that the person whose name is on the loan documentation must be living in the property,” Breyer says. “You could buy a house with an FHA loan and rent out rooms to your friends or coworkers to subsidize your monthly housing expenses, but you cannot move out of the property. You must use it as your home.”
After the first year, the occupancy requirement ends. Then, you can move out and convert your entire home to an investment property that you can rent to someone else.
A cosigner isn’t required to occupy your home with you.
Exceptions to FHA occupancy rules
Your lender can request an exception to the occupancy rules if the spirit of the rule is honored.
For example, a military serviceperson who lives overseas, but intends to return to the U.S., might be allowed more than 60 days to move into a newly FHA-financed principal residence.
Exceptions also can be granted for extenuating circumstances, such as a change in family size or job relocation.
An FHA loan allows you to purchase a property with up to four housing units. You’re only required to occupy one unit as your principal residence. Any other units can be rented out as soon as you purchase the property.
Violating the rules could trigger a fraud investigation by the FHA, mortgage fraud is a federal crime.
Can you avoid FHA occupancy rules?
Newbie investors might wonder whether there are “tricks” they can use to bypass the FHA occupancy guidelines. The answer is no. The rules exist for public policy reasons. Violating them can trigger severe consequences.
“Violating the rules could trigger a fraud investigation by the FHA,” Breyer says. “Mortgage fraud is a federal crime. Consequences can be imprisonment of up to 10 years and financial penalties of up to $100,000. The lender has the right to raise your interest rates, call your loan due, or foreclose on your loan.”
There’s even a special name for this type of offense: “occupancy fraud.”
Lenders have ways to find scofflaws by using public records, insurance and utility company contacts, credit reports, and other public filings. They might also be able to use your phone records.
“If the lender initiates a fraud investigation, they can use your smartphone as evidence of where you spend the majority of your time,” Breyer says. “If [records] showed you spent eight months of the year at another dwelling, you’d have to prove that a hardship kept you from living in your primary residence with the FHA loan on it.”
Compare your options
The only way to know your best option is first to figure out what’s even available to you – and the only way to do that is by doing the proper research.
So, before you settle on an FHA loan, compare a few other options to see what you might qualify for.
An easy way to do that is by heading over to SuperMoney’s mortgage review page, where you can review and compare top mortgage lenders all in one place.
Marcie Geffner is an award-winning freelance reporter, editor, writer and book critic. Her work has been featured online and in print by The Washington Post, Los Angeles Times, Chicago Sun-Times, Urban Land, Business Start-Ups and Fox Business Network Online, among many other newspapers, magazines, and websites. With a bachelor’s degree in English from UCLA and MBA from Pepperdine University in Malibu, Geffner has impressive credentials in both story-telling and business management. A second-generation native of Los Angeles, Geffner now lives in Ventura, California, a surf city northwest of her hometown.