Owner Occupy purchase Multi-family with FHA

Temecula, CA · Member since 2015 · 19 posts · 12 votes

I have my sights on multi-family props in the San Diego area. When FHA says owner occupied, does that mean one of the units has to be a primary home? Can I use one of the units for a year as a commuter residence (live there 4 days a week) and quality?

Second question: If all the units are occupied, is there a way to encourage a tenant to leave (evict)? I'm not finding any so far that have a unit empty?

Thanks for he advice.

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Kevin FoxPro Member

Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes

10y

Hey @Gary Wright

First, I just want to say that it is incredibly wise to have your sights set on multi-family properties. Generally speaking, they tend to present the best opportunities for buy & hold investments in our market and are a FANTASTIC way to begin building your portfolio.

As for your questions:

The FHA's owner-occupancy (OO) requirement does stipulate that the buyer must reside in the property (or one if its units) as their primary residence. It may vary between different lenders, but technically what qualifies as your primary residence is merely the home you live in for the majority of the year (4/7 days a week should satisfy that requirement), There are some nuances to this rule, I'm sure, so be sure to speak with a lender who has a lot of experience with FHA. Do you have a loan broker assisting you map out the logistics of everything? Happy to recommend a great one, if not.

To answer your second question, yes. There are a few different ways to encourage tenants to vacate once you have ownership of the home, but that likely will not be the best route given your particular circumstance. Another stipulation of the FHA's OO requirement is that the owner must take occupancy within 60 days after closing, so you want to avoid putting yourself in a situation where you are unable to do so. There are a few different ways to go about either 1. getting the existing tenants out a little more constructively (and much less risky/problematic for you) prior to closing or 2. finding properties that have already been vacated.

Feel free to send me a PM (private message) if you have any other questions or would like to discuss this further.

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Jerry PadillaBusiness Member
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
10y
@Gary Wright
Yes, it has to be your primary residence. The location where you have your mail sent to and live all the time.
You would have to have a tenant that is on month to month or a lease that ends around closing. You are required to move in within 60 days.
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Kevin FoxPro Member
Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
10y
Hey @Gary Wright
First, I just want to say that it is incredibly wise to have your sights set on multi-family properties. Generally speaking, they tend to present the best opportunities for buy & hold investments in our market and are a FANTASTIC way to begin building your portfolio.
As for your questions:
The FHA's owner-occupancy (OO) requirement does stipulate that the buyer must reside in the property (or one if its units) as their primary residence. It may vary between different lenders, but technically what qualifies as your primary residence is merely the home you live in for the majority of the year (4/7 days a week should satisfy that requirement), There are some nuances to this rule, I'm sure, so be sure to speak with a lender who has a lot of experience with FHA. Do you have a loan broker assisting you map out the logistics of everything? Happy to recommend a great one, if not.
To answer your second question, yes. There are a few different ways to encourage tenants to vacate once you have ownership of the home, but that likely will not be the best route given your particular circumstance. Another stipulation of the FHA's OO requirement is that the owner must take occupancy within 60 days after closing, so you want to avoid putting yourself in a situation where you are unable to do so. There are a few different ways to go about either 1. getting the existing tenants out a little more constructively (and much less risky/problematic for you) prior to closing or 2. finding properties that have already been vacated.
Feel free to send me a PM (private message) if you have any other questions or would like to discuss this further.
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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
10y
@Gary Wright, one thing to keep in mind when looking for an FHA owner-occupied triplex or fourplex is that 85% of the market rents on all four units need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance). This is known as the self-sufficiency rule. It only applies to 3- and 4-unit properties (not SFRs or duplex) bought using FHA financing. I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies. There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search, especially in expensive markets like ours.
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Gary Wright
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Temecula, CA · Member since 2015 · 19 posts · 12 votes
10y
thank you all for the great feedback! Very helpful.
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