"Co-op" style home w/ curtain rooms to affect FHA loan?

16 Replies


I'm looking to buy the current home that I live in. It's a cooperative (made by the current owner ) which means it's technically a 3 bedroom turned into a 6 person living situation, with the huge master bedroom being partitioned into 3 curtain rooms. I'm not sure the legalities of such a situation, but it's been established like that for 3 years and I would love to keep it that way. However, I'm not sure how that'll affect the loan process or appraisal. Will loan officers inquire about other tenants and the number of tenants? And will appraisers take that into account, or will they not care? Thank you so much! Hope you are all having a productive, great day.

@Hae-Yuan Chang

First allow me to be clear that I am far removed from Florida and do not have first-hand knowledge of the regulations and tenancy law there.

However, based on my experience with building codes (IRC, IBC) and rental regulations in other jurisdictions, I would be highly sceptical that your present living arrangement of dividing a room into multiple partitions using curtains (like a hospital ward) is legal - it does not even comply with requirements for a rooming/boarding house.  Additionally, it is most probably the house is in violation of local occupancy by-laws.  Finally, I am certain a lender would not underwrite a mortgage on the property if they possessed knowledge of the present use.

My advice, for what it is worth, would be to consider moving into a better living arrangement and under no circumstance consider purchasing this problem from the current owner.

@Hae-Yuan Chang This is an interesting concept,  in spite of the fact that I tend to agree with Roy N. I have no knowledge of what codes may be violated but the fact that this is your current living situation which you obviously enjoy enough to want to acquire it as an owner really got me interested. Many of us struggle with the idea of sharing a duplex with a tenant, few of us are willing to have roommates for a short time but I've never heard of curtain divided rooms, let alone making for a peaceful living arrangement. I think there is much to be learned here from the dynamics of the housemates. Can you share how this many people get along well enough to live harmoniously in such close proximity? If you can do it with curtain partitions. I can only imagine it would be very successful in a home with wall separation. Perhaps you can take the concept and apply it in property that is better suited for it. 

I wish you much success! 

@Pyrrha Rivers

Wow, thanks for the post! I definitely love this living arrangement. It's a community where we cook, clean, pool resources, and do awesome backyard projects together. We focus around local sustainability, and you benefit from living with such knowledgeable, go getters. It's given me lifelong friendships, and I would say that it's the ideal, economical way to live; as long as one can give up a little privacy, haha. I would love to integrate real estate investing with community living situations! 

@Hae-Yuan Chang this is what I gathered from your original post. I think that there are so many valuable lessons to be learned in communal type living. It's not for everyone but I think many could benefit from learning about it. Most people have never been exposed to this idea and all we envision are the college roommates we did not enjoy sharing time and space with. I know your landlord or house leader set up the arrangement. Do you know how the housemate selection was done? Have you participated in the selection process? Can you replicate this in a different house? Perhaps one that is mote traditional, can be financed without issue but you can then house hack by adding a few roommates. The house rules and vibe you create within your house hack is up to you by recruiting likeminded housemates willing to share in the cooking, cleaning and projects you wish to engage in.

Could it possibly change the dynamic of the community, if you were to buy the property and would now be the landlord? 

I know we would all think that that shouldn't make a difference, but I've been often surprised, when a seemingly reasonable tenant-landlord relationship will suddenly turn into animosity, if the tenant doesn't have money for rent. 

Suddenly you're the rich landlord, who's taking advantage of the little guy and don't have compassion. And they will hate you, because you won't let them slide for a month or two.

If it's bad, if you live somewhere else, I could imagine that to be a total nightmare, if you don't even have a room to lock the door.

@Hae-Yuan Chang

In reading @Pyrrha Rivers response above, and re-reading my own, I see how I might have come across as a little callous - I was solely looking at the property through the lens of an investment and not as your home ... my wife refers to my tendency towards an über-rational view in such situations as "having the empathy of a stone".

Thank-you, Pyrrha for refocusing a human lens on the discussion.

Based upon your description, I still suspect there are numerous code and by-law violations which could come into play here if events - such as a transfer of ownership - brought the house to the attention of authorities.   However, it may also be possible to address such issues to bring your housing arrangements into compliance with code - the curtain separators may need to be replaced with something a little more "wall-like".

As I was rereading this thread, another question/idea came to mind.  If this communal living is truly a cooperative - and you manage the home as a collective? - have you considered having all the residents acquire a share of the ownership?

@Michaela G.

That's a great thought. I have thought about this situation, and I believe that it'll be a smooth transition. All of us are open about finances and the way we spend our pooled funds. We have meetings every week and we encourage communication throughout the week. Basically, we all get an equal say for the most part, as long as it a wise decision for the future of the house. I wish to keep this transparency and equalness to combat any common tenant/landlord issues. I will set guidelines about lateness in rent and other issues where it matters. 

For the most part, everyone who comes into the community is decided on the co-op and is usually always on top of their game. :)

@Roy N.

Haha, I appreciate your follow up response! I do view this property as a home and less of an investment. It's my first property to see how processes work, how to be a good landlord, etc. There are definitely alternatives I can consider if I want to bring the home up to code. So I guess a a first property, it's not typically "ideal", since it may cause some obstacles, but I'm willing to work around it and find a workaround as you had mentioned. 

In terms of having the tenants share ownership, I honestly haven't looked into that yet. But I did think of that as a possibility, and I believe it would come at a bigger risk financially to pay back loans. Besides, these are 20 somethings that are new to the credit game and haven't had time to make sufficient income history.

Do you have enough income to qualify owning the property on your income - not considering any rental income from your co-habitants?

That's what the mortgage company is looking for. 

I would not consider the shared ownership, because the potential of some neighbor complaining about the 'rooming house' next door and people having to move out. That would be a really ugly situation

True. I agree with Michaela. Sharing the load may sound great up front, but something unexpected almost always comes up. Just ask any failed couple who decided to jointly buy a house before they committed to each other with a marriage. I rest my case.

That said, I am very much FOR the coop idea, but for an arms-length rental property, not a live-in unit. In that way, it is much easier to keep it strictly business.

Account Closed

Haha, true words! 

I have been very mentally and time invested in this co-op, so I feel that I want to take a role in the co-op. It's true that it's mixing business with personal, but I believe that in my personal situation it can work. If not, I will adjust and learn :).

I plan investing on co-op properties in the future, where I will take more of an arms-length approach.

Thank you @Roy N. for giving a second consideration to @Hae-Yuan Chang 's situation. It is her home. One that she enjoys and wants to preserve. I have very limited experience so I've only had insight into two appraisals. Neither required the appraiser to enter the properties. I wonder if in Florida things are different and they would enter. I also wonder if Hae-Yuan is expecting the income from rent to help qualify but I thought this was only for apartments. If she and her mom are able to qualify for the loan and purchase the home, then the living arrangement that she wants to have much like a house hack is not of consequence to her loan. @Michaela G. brings up good points about dynamics changing with the ownership change and the shift in power position.

So interesting to see how we can make different choices in the way that we set up our living arrangements. So refreshing to see that we don't all have to live with walls we build all around ourselves and our stuff. 

@Hae-Yuan Chang assuming that you will buy the property in its entirety you may consider a low down conventional loan. Fannie Mae created a new loan program this year aimed at first time home buyers which will take into consideration boarder income. Unless the property is legally deeded a coop then for the purpose of obtaining a mortgage it will be a single family purchase and your roomates will be considered boarders.