FHA occupancy rules. Need advice

34 Replies

Hi, this is my first time posting on the forum, hopefully someone can help me with my situation. I live in an owner occupied duplex that I purchased with an FHA loan. I live in one side, and I rent the other side out. The property was purchased in January. FHA mandates that I must live in the unit for 1 year before I am able to rent it out.

The problem is I need to relocate out of state because of my job. Will FHA come after me if I leave 5 months before the 1 year is up? What are the repercussions? I'm mostly worried about what will happen when I switch my insurance to a rental.

As long as you can document that you had to move in order to keep your job, you'll be fine.

It might be a good idea to talk to the mortgage company and let them know that you're being transferred or that you must move for work, just so they can put a note in the file and avoid any hassles if it does trigger when you switch insurance.  I think they told us it's 75 miles or more, so as long as "out of state" isn't something like Portland, OR, to Vancouver, WA, you're probably fine.  

Thank you @Michael Smith  for the info.  I am looking at a few Home Path homes to move into for a year then keep as a rental.  Do you see any flags that I should be aware of before I pull the trigger?

I'm in a somewhat similar situation. I purchased a triplex about 2 weeks ago using an FHA loan. I am living in the basement unit and renting out the other 2 units. My next goal is to buy another property before Jan 1. I would like that property to be owner occupied as well. My question is, if I move out of my FHA property after living there for (lets say 4 months) will anyone come after me. I talked to my mortgage rep and she said she has never heard of something like that happen, but wasn't really sure. She recommended that I stay in the property for 6 months to be on the safe side. Does anyone have experience with moving out of an FHA property before the full year?

@Christian Bors  what you are asking about is mortgage fraud, and yes the federal government does come after people for it. I'd suggest getting a new mortgage rep, because frankly yours is an idiot. Owner occupied loans come with a one year occupancy restriction (theres a form you signed in that stack of paperwork for the loan). If your mortgage rep doesn't know that then they're not very good/experienced, worse they advised 6 months which is both wrong and based on no guideline of any sort.

To be clear here, the advice about it being ok to move is due solely to the unforeseen job relocation. That is actually one of the applicable reasons listed on FHA's site for why they would failing to meet the occupancy criteria.

@Matt Devincenzo  thanks for clarifying! I'm sure your right, I definitely signed a lot of papers. I just wasn't sure if someone actually checks to make sure that you are still occupying the property. Maybe I'll go back and check all those forms out. I'll also suggest to my rep that she should look deeper into this. I definitely don't want to do anything illegal.

@Justen Ashcraft  , @Matt Devincenzo  , @Christian Bors  ...

The way I interpreted Christian's question does not necessarily indicate fraud. The bottom line is your intent at the time of application and closing... FHA loans do require that you intend to occupy the property as your primary residence within 60 days of closing, and for at least the first year. If this was your intent when you purchased the home, there is no fraud. If you move out within 12 months just because you find a home you like better, HUD does technically have the legal right to accelerate the balance as due under the terms of your loan (even though this still would not be considered fraud if your intent at the time of closing was to live in the home for 12 months).

If you move within the first 12 months due to an extenuating circumstance, such as a job transfer, HUD does not have recourse... The key is that you have to be able to document that staying in the home would have caused you financial hardship.

If someone borrows for a triplex, and wants to move out after 4 months and purchase another OO fha financed dwelling, I'm going to call bs if they try saying fraud wasn't their intent.
If that's the case fha would be passing out 3.5% down loans on every property including investment properties.

The OP won't be able to get another FHA loan if he does the move, locally. Only one FHA loan at a time, unless you have to move a certain distance away for job relo, etc.

@Michael Smith   @Justen Ashcraft @Matt Devincenzo  

When I spoke with my mortgage rep, the line about the intent of living in the property for a year was the gray area. I think that's why she was unsure. How can they judge what a person's intent was? I know I wont be able to get another FHA loan, but I was thinking about buying a SFR so my girlfriend and I have our own place. Also, the 4 months was just an example. My first property from start to finish almost took a year. So by the time I find the second property, it may be a full year. I am not saying I will move out, but if the option is legal, I would like too. Then I might be able to get around the 20-25% down payment.

@Christian Bors  If you're moving from the triplex to a SFR I think you could easily make the case that you did intent to stay in the triplex for a year, but decided that you would prefer to live in a SFR. Keep in mind, as I mentioned in my earlier post, HUD could still tehcnically call your loan due even though there was no fraudulent intent.

As @Wayne Brooks   pointed out you would not be able to get another FHA loan locally (except for a few very specific extenuating circumstances... for example if your unit in the triplex was a 1 bedroom but now you have a child and need a place with an extra bedroom), but you could get a Conventional loan as a primary residence with 5% down.

@Michael Smith Thanks for the input. It's funny that you mention if I were to have a child or something and I need a bigger place that it should be fine. My complex is a 1 bedroom apartment and it is very small. So my girlfriend and I have been thinking about buying a sfr for ourselves which I think a reasonable excuse to move out of my FHA property

@Christian Bors I'll have to double check, but i think you can only use this exception to get a new FHA loan if you had a child and that was the reason for needing a larger place.

@Michael Smith I wouldn't want a new FHA. I'm fine with buying the next property conventional, I just want to make sure that if I were to move out it won't be mortgage fraud

@Christian Bors - We talked about this before - If you get 2 OO loans in 12 months it could trigger an audit - these are the 3 reasons you can move and get another OO loan without committing mortgage fraud

  • Relocation: If the borrower is relocating and reestablishing residency in another area not within reasonable commuting distance from the current principal residence (generally at least 50 miles away), the borrower may obtain another owner occupied mortgage
  • Increase in family size: The borrower may be permitted to obtain another home with if the number of legal dependents increases to the point that the present house no longer meets the family’s needs. The borrower must also:
    • Provide satisfactory evidence of the increase in dependents and the property’s failure to meet the family’s needs.
    • Pay down the outstanding mortgage balance on the present property to a 75% or less loan to value ratio, exclusive of any financed mortgage insurance premium.
  • Vacating a jointly owned property: If the borrower is vacating a residence that will remain occupied by a co-borrower, the borrower is permitted to obtain another owner occupied mortgage. Acceptable situations include instances of divorce after which the vacating ex-spouse will purchase a new home or one of the co-borrowers will vacate the existing property.

@Michael Smith 

Originally posted by @Christian Bors:

I'm in a somewhat similar situation. I purchased a triplex about 2 weeks ago using an FHA loan. I am living in the basement unit and renting out the other 2 units. My next goal is to buy another property before Jan 1. I would like that property to be owner occupied as well.

Originally posted by @Michael Smith: 

The way I interpreted Christian's question does not necessarily indicate fraud. 

Michael, he purchased the triplex 2 WEEKS AGO and is stating his goal is to buy another owner occupied property before January 1st.  It is pretty clear what his intent is.

Get a loan on your new property as a non owner occupied,,,your playing with fire the other way.  With all of the mortgage fraud from a few years ago, you don't want to be a poster child for "we got this person trying to commit mortgage fraud and made an example of him".

You made a one year comittment, unless something truely changed in your situation, you will be committing fraud, say its a gray area, etc etc, you still bought your first property with plans to buy another OO property 7 months later,,,that my friend is clearly fraud.

Play by the rules, you will sleep better at night knowing you don't have something "that could be discovered and really screw up your life"

Mortgage fraud is a serious crime, and one punished by significant penalties. Because mortgage fraud can involve different crimes at either the state and federal level, the potential penalties associated with the crime differ widely. Mortgage fraud is typically charged as a felony offense, but misdemeanor crimes are possible in cases where only a small amount of money is involved, typically less than about $1,000.

  • Prison. Prison penalties for mortgage fraud can be significant. A conviction for federal mortgage fraud charges can result in a federal prison sentence of 30 years, while state convictions can last a few years or more. Misdemeanor fraud convictions can bring jail sentences of up to a year.
  • Fines.Fines for mortgage fraud are often extremely high, especially when professional fraud is involved. A conviction for a single count of a federal mortgage fraud can result in a fine of up to $1 million. State fines can range from a few thousand dollars for a misdemeanor convictions to $100,000 or more for felony convictions.
  • Restitution. Mortgage fraud convictions often include restitution payments as well. Restitution is different than a fine, though they both involve money. Restitution is designed to compensate the injured party for your wrongdoing, while the government imposes a fine as a penalty. If, for example, you are convicted of mortgage fraud after you make false statements when applying for a mortgage, you may have to pay restitution to the lender in addition to your fines.
  • Probation. Probation sentences can be imposed for a mortgage fraud conviction separately from, or in addition to, fines and prison sentences. Probation sentences for mortgage fraud typically last at least one year, but longer terms are common. Someone on probation must meet specified court requirements, such as making regular reports to a probation officer, submitting to random drug testing, and refraining from committing other criminal acts.

Account Closed 

I think it need to clarify some things. First off, when I decided to get involved in real estate, (less then a year ago),my parents and friends of my parents all said I needed 20% to buy a property. Their reasoning was that you don't want to pay pmi. So I saved every penny every month so I could put down 20%. Well, needless to say, one day I stumbled across bigger pockets and my eyes were opened. I never heard of a thing call FHA loan. Originally, my plan was to buy one property every year or two and slowly bullied a portfolio. Then in 15 to 20 years I would be able to comfortably retire. Well, after I bought my first property, I realized I have enough capital to buy another. I didn't need to tie up all my cash in one property because of this owner occupy thing. So I figured, why not do this again? After doing more research on bp, I realized I may be stuck in my original property for a year. Which is completely fine, since that was the plan to begin with. However I have been hearing mix ideas. Some people say it's ok, others do not say it's ok to owner occupy another property. And honestly since I cannot get a definitive answer, I won't buy another owner occupied property. I am very pro to legal activities and wouldn't risk committing fraud over something like waiting a year. Yesterday I visited two properties with the intent I would buy them as an investor. Last Saturday, I put an offer in as an investor and later today I am looking at a Fannie Mae property as an investor. Ultimately, my intent is to build a portfolio that does not require a massive amount of capital. I was just asking to what my options are with the FHA loan and anyone had personal experience with this situation. This is a very long post so most likely you guys stopped reading or never started, but I do appreciate all of the feedback.

@Christian Bors  

In a subsequent post you stated "I just wasn't sure if someone actually checks to make sure that you are still occupying the property."  

I'm sorry, but that statement suggests (in my opinion) that if no one were to check that you would proceed with your plan of moving out early.  

I have yet to buy my first investment property, so I commend you for taking action. Perhaps your excitement to keep growing your business temporarily clouded your judgment when you made the prior statements.

You are correct, I did make that statement. However, as mentioned in the early post, this was what I was told by my mortgage rep. Hence, I was trying to clarify. My knowledge is very limited and I am still learning. About 8 months ago, I didn't even know what pmi was. I was fortunate to find such a great resource like bp. I have come along way in such a short period of time. Anyways, if you remember the final statement of that post, I clearly state I don't want to do anything illegal so your interpretation may have been clouded.  I have stated several times; here and other places that I will not and do not plan to partake in shady/illegal actions.  I am going to grow my business the correct way.   However, I do realize I am very young and naive. And I can see you how you would interpret that statement.  In the future, I'll try to articulate my views stronger.

I do owe you and everyone else a bp a thanks. If it weren't for these types of discussions I could easily  do something that I didn't know was illegal. I really like having these conversations.

@Christian Bors  - You mortgage rep is an idiot.  plain and simple.

If you have left over capital then buy it with an investment loan (with a new mortgage rep)

I'm starting to get that feeling haha. And I have already contacted other reps. It was the first one, so I really didn't know what I was doing.

And I think the plan for the next one will be to get a fannie mae property. Then I'll still be abe to get around that 25% down payment LEGALLY!

Thanks Brie!

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