Using FHA Loan Without Living At Property

[John O'Brien]

Looking at buying a 4-unit in NJ and considering using an FHA loan to decrease down payment money needed (would be 3.5%-5% down in this case). All 4 units are currently occupied with paying, long-term tenants. I don't particular want/need to live there, especially not right away. What are the rules around occupying a property purchased with an FHA loan in this scenario? More importantly, what is the actual enforcement of those rules? Do I need to immediately start the eviction process with one of the tenants, or is there a time period by which I need to occupy a unit? I can't imagine they would be encouraging/forcing you to evict current tenants. And if I don't evict, and the tenants stay for a full year, is the "must occupy for 1 year" rule fulfilled, even though I technically have never lived there? Looking to see what the likelihood is that I can use the FHA without actually living at the property. Plan is to eventually re-finance into a conventional loan. Thanks!

[Dustin Allen]

@John O'Brien

Talk to your lender. It should be 60 days to move into the property. If you don’t start trying to move in right away, it could be considered mortgage fraud. If you try to get them out and you are unable to for some time, that would be a different story. (I’m not a lawyer, you should talk to one)

You definitely do not want to use FHA with no intention of moving in to the property.

[John O'Brien]

Thanks @Dustin Allen. That's exactly what I'm trying to figure out - is it a "risk" or is it illegal? Switching a property from personal name to LLC and risking the "due on sale" clause is a risk. Risks are to be evaluated and taken when appropriate. Fraud is a different story - not something I'm interested in dabbling in haha! I guess I need to confirm that would be the case. Thanks for the response.

[David M.]

@John O'Brien

Consult a qualified professional.. But, yes that should be mortgage fraud..  As you said, the Due on Sale clause is just a risk.  There is nothing illegal about it.  the "basic" mitigation plan to that would just be to refinance...  But, back to not occupying on an owner-occupied loan, that would be illegal to my layman's understanding.  I'm not sure of the "risk" of enforcement / somebody catching you.  if anything, you better not apply for another loan until the Statute of Limitations has expired...

Good luck.

[Joe Splitrock]

FHA is for owner occupied only, failing to occupy is mortgage fraud. You will sign a document stating you will occupy the property. During the underwriting process, they will verify that a unit is vacant or has a lease that can be terminated. They will not write the loan if all the tenants are locked in a lease term. If there is a month to month tenant, you need to serve notice to vacate and if they don't leave, you need to evict. 

As far as enforcement, they do have testers that verify occupancy, but it is sporatic. Your drivers license, voter registration, utility bills and tax address are all proof of occupancy.

Only a small number of people committing any crime get caught. When you say "more important is enforcement" this kind of mentality is what gets you in trouble. You think you won't get caught, so you take a chance. You may even think you outsmarted the system. Then you get confidence and do it again, but next time you take bigger chance. Eventually people get caught, sometimes on their first attempt.