Using an FHA Loan on a questionably permitted 3-Unit?

Question

I'm looking at putting an offer in on a property utilizing an FHA loan. The property is on the market as a 3-unit, has 3 renters currently in it and probably has for a long time. The area however is zoned single family and only one unit appears on the tax record. I've toured the property and it's in great condition. Separations were clearly made over the life of the property but everything appears to be in sound order. There is an unpermitted bedroom addition in one of the units and there are three full kitchens on the property.

I need the FHA loan up to the 3 unit lending limit to really have chance at this and I think it will come down to the appraisal. What will the unit count in the appraisal be based on?

Dan Weber · Answer

You need to go to your local building department and pull the property jacket for that address. Go through all of the files in that jacket. Figure out what the property was built as (most likely single family) and see if there was ever paperwork filed to convert it to a three family. It could be possible that it was turned into a three family prior to the existing zoning laws that prohibit the three family use for that area. If you cannot find the documents to support the buildings current use as a three family, ask the city what they view the property as. Would they view this property as pre-existing non-conforming? Or because they can't find any paper trail for the conversion of a single to a three family then is the current use of the property in violation? This is where I would start. Hopefully you can find the documents you need to support the use as a three family and you can provide this to the appraisal company so that it is not an issue.