SFH To Duplex Zoning FHA Loan Requirements

11 Replies

Im looking to house hack a duplex in Philadelphia with an FHA loan, I put an offer in on a property and my realtor tells me that the seller warned us that the FHA may not approve the loan because the duplex is zoned as a SFH. I did some research to find that most multifamily homes in philly are illegally zoned, even fully remodeled ones. Is this zoning rule true? if so what are my options besides going conventional? Thanks for any help.

Hey @Johnny Mack I had a similar issue trying to buy my Duplex. While not the same exactly....We basically were in contract FHA on a Duplex to house hack, and while it was zoned correctly the zoning had changed in that area with the city so that you could no longer build multi family. So while we could get the city to say that there was a process to get special permission to re-build a duplex if there was a fire or other complete loss on the property, but that the city could not at this time guarantee it. In other words they said, that yes if you had a complete loss today there is a process to get permission to rebuild, but basically said they can't guarantee what the rules or processes are going to be in the future....which made logical sense to me. But the underwriter working with my lender decided that was not good enough and would not approve the deal.

So I say all that because we ended up just changing lenders to one who had a better relationship/more experienced network of underwriters and they got the deal done for us.  So while your realtor is probably correct that there will be some hoops to jump through, its probably going to come down to the underwriter more than anything...at least from my experience.


So probably worth having an upfront conversation with a couple lenders to see if any of them see more confident, or perhaps have gotten deals done like this before and can offer some best practices.  


But good luck and I hope you get it! 

Cleveland has a similar problem. In my experience you would need to contact the city and see if the city would let you apply to have the house properly zoned. The city may require utilities be changed and separately metered if they are not.

@Johnny Mack

Contact the city and apply for a Variance. If it’s an existing non-conforming they might let you keep it if you can show it’s in good shape and meets requirements (I relalize it’s not Section 8), but look up the Section 8 checklist for rentals and make sure all those items are checked off, no peeing paint, smoke/CO detectors, handrails, etc.

Originally posted by @Frank Hinck :

@Johnny Mack

Contact the city and apply for a Variance. If it’s an existing non-conforming they might let you keep it if you can show it’s in good shape and meets requirements (I relalize it’s not Section 8), but look up the Section 8 checklist for rentals and make sure all those items are checked off, no peeing paint, smoke/CO detectors, handrails, etc.

Our variance process is insane and takes many months (community meetings where they vote on it, which aren't happening anyway due to Covid) and is far from guaranteed. If the house already has a variance in place or active rental licenses because it's been used this way for years ("grandfathered in" for lack of a better term) he may be ok but the variance process here isn't friendly nor fast and it's unfortunately not a fit for this type of purchase. He can pull the U&O cert and see if it's allowed to be used as a duplex. I bought a 4-unit from a family that had always used the house that way since it was built in the 50's but it was "illegal" as far as the city was concerned since it wasn't zoned as MFH any longer due to the base zoning changing years ago and the owners never got rental licenses. I took the owner down to L&I, we showed them pictures of the separate gas and electric meters, utility bills, and leases from "family members" since you don't need licenses to rent to family and 2/4 were family, and they gave us a pass, but it doesn't happen often that way. 

The separate meters are a good sign but not a guarantee. Also, his agent should have in the contract something to the effect of "home must be a legal duplex" to keep him safe. Not an agent so don't know the exact wording to use but that's something my wife uses for her MFH house hack buyers to keep them safe contractually since MFH use and zoning in Philadelphia can be very tricky. 

 

Originally posted by @Johnny Mack :

@Ian Tvardovskaya the property is properly metered, you can tell that it was even built as a duplex. There’s even two front entrances. I wonder why most aren’t properly zoned

 My guess is many were properly zoned but the zoning in Philadelphia actually changes often, or at least more often than I'm comfortable with, mainly because city council people can change zoning on a whim to reward or punish constituents and developers. It happens quite a bit and can cost developers big bucks if zoning changes after they buy something but before they can lock in their zoning permits. The other reason many aren't legal MFH's is people just do what they want and there wasn't as much oversight or consequences back in the day. If you don't get inspections or rental licenses, you don't need proper zoning or variances. These days, if you don't have a rental license for your unit, you can't evict, and if your unit is illegal, you can't get a rental license. Then there's insurance not covering illegal units, fines, L&I making you rip out illegal units if you can't get in compliance, etc. It's not a game any more! 

@Troy Sheets There's MFH selling all over there city right now that can't get their rental license until the zoning is legal, as much as I liked the property this actually makes sense as I can't evict without my license plus the eviction ban. That would make for a bad situation for an unsuspecting Landlord, thanks.

Johnny,

I just started on the journey of making an RSA-5 SFH into a legal 2-unit. Im hoping its pedigree as a duplex will help this process. With that said, I made sure the numbers work as a 1 unit as a backup plan. I reached out to a few folks who have gone through the process including Troy who was very helpful. They had some solid insight, one common piece of advice was its a bit of a crapshoot where you could get lucky or unlucky.

Is there anyway you could make your offer contingent on they getting a U&O for a MFH?

-Eric