you can get an FHA loan but all the units are rented, what can/would you do?

3 Replies

This question comes from looking into the available multifamily properties in my area. The properties are available, yet all the units are rented.  What do you do if you want the properties? Do you throw people out? Can you throw people out (I cant imagine the Oregon government allowing this)? Do you resort to creative financing in order to keep all renters? How would you more experienced people proceed?

Hey @Mason Valenzuela , that happens all the time with FHA financing. Usually what happens is the tenants are there month to month so you just put it in the contract that they need to move out and that the property is to be transferred vacant. One of my partners actually just bought a 3 family that he was planning on living in and renting out the other 2 units. So it was written in the P&S that unit 1 was to be vacant and the other two units were month to month so he just signed them to leases once he closed and moved into the first unit.

It really depends on whether the tenants have a lease, if all the tenants are Month to month then its easier for you to decide how you want the property. One benefit of taking over a multi and living in one unit is if you get the rent for the occupied units at closing. So say you close on the 2nd of the month the previous landlord will give you a check for rent from day 2 to the end of the month. Its a nice little boost of cashflow for you at closing. Of course this has to be in the contract. 

I had this same question when I was looking at multifamily properties and wanting to use FHA. I was told that the FHA won't make you kick anyone out or evict them just so you can satisfy the owner-occupancy requirement. You do have to move in at some point (or else you're committing mortgage fraud... yikes) but you don't have to break someone's lease to do it.

As @Rob L. noted, a lot of times the tenants are on month-to-month leases and at least one of the units can be delivered to you vacant. 

I ended up buying a fully vacant triplex so didn't have the good fortune of those prorated rents he speaks of, but if the closing is properly timed you could have some extra cash flow from the property the day it becomes yours. Pretty sweet.

Another thing I didn't know about at the time: You don't have to move into the largest unit. It can be any of the units. 

Good luck!


Below are the underwriting guidelines from FHA regarding occupation.

1-4 unit primary residences are insured under section 203(b) of HUD. The borrowers must occupy the property within 60 days after closing and must continuously occupy the property for one year unless they can document hardship or extenuating circumstances.

203(b) is what most people call "normal "FHA loans. You might also see 203(k) (rehab loans) but not as often.

Typically when my clients buy the property they raise rent almost immediately and give notice to at least one tenant. It will depend on the leases in your scenario if you can do that. They then occupy the property while bringing rents up and doing any upgrades...then get out of the FHA loan into a conventional without MI.

With any loan that you purchase a property as your primary residence you will be stating at closing that you intend to occupy the property for one year, otherwise you would be looking at non owner occupied so that would preclude you from using FHA.

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