FHA occupancy rules. Need advice

Investor · Seattle, WA · Member since 2014 · 1 post · 0 votes

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.

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Brie SchmidtBusiness Member

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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes

12y

@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.

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Christian Bors
Real Estate Agent · Mechanicsburg, PA · Member since 2014 · 529 posts · 217 votes
12y
@Richard C. Haha she was nice. And again, it was my first one so I didn't have a clue what was going on. I have moved on to other reps now. I don't think she understood what I am trying to do.
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Shaun Weekes
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
12y
Hello All,
This post is super interesting and is also a prime example of why the lending industry need to fix these gray areas.
Everyone that posted on here could have an argument either way but the only way to truly protect yourself is to live in the property for one year. Now they're exceptions like job relocation or maybe your going to have a baby or two and need more space. It's tough to get this through but if you document it all correctly you won't have an issue.
In conclusion I would strongly recommend that you stay in the property for 1 year or if you buy another property make sure it's labeled as a second home ( 10% down ) or an investment home which is at least 20% down.

The FBI doesn't mess around and it's not worth it. Just don't label the new home Owner Occupied and stay in the FHA home for 1 year unless you have to relocate or need more room for an expanding family.

That is how I would approach an FHA loan.
I hope this helps.
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Christian Bors
Real Estate Agent · Mechanicsburg, PA · Member since 2014 · 529 posts · 217 votes
12y
@Brie Schmidt @Account Closed
Just got off the phone with a mortgage rep that experienced this situation. The client went to jail for 18months and was fine 25k.. Also the government came after the mortgage rep as well. I think this discussion is over.
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Sean Ryan
Troy, NY · Member since 2016 · 9 posts · 1 vote
9y
Hello all,
Just wanted to re-open this discussion. My questions have been nearly all answered (thank you @Brie Schmidt especially).
I'm looking to purchase a triplex with an FHA loan in the Albany, New York area. I currently live and work in Albany, however I've been considering moving to New York City (150 Miles away). If I purchased a house in December/January, and a job opportunity arose in the summer would I be committing any type of fraud? I am not set on this move and I do not have a job lined up, so I don't feel as though I'm lying in any way. I would continue to own the home and use it as a rental. If necessary I could keep the unit I'd be technically "owner occupying" empty for myself even though I wouldn't be using it.
Thanks for any help you can offer!
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Dafina Sharpe
Rental Property Investor · Albany, NY · Member since 2016 · 17 posts · 6 votes
9y
No, I don't think so...bc at the time of purchase your intent was to occupy the property.
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
9y
From my understanding as long as you did not enter into the mortgage knowing you were definitely moving than you are ok.
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Sean Ryan
Troy, NY · Member since 2016 · 9 posts · 1 vote
9y
Sounds great, thanks!
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Tyler Murphy
Columbus, OH · Member since 2017 · 2 posts · 0 votes
9y
Would I be able to move and rent out all units before 1 year if I am accepted to college and have to move over 100 miles away?
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Jonathan Burns
Marathon, FL · Member since 2017 · 1 post · 0 votes
8y
@Brie Schmidt was very informative, Thank you. My situation is one that i cant find any comment on from HUD or FHA. My wife and I are first time home buyers and will be closing on a duplex in the next few weeks. We fully intend on living in one side and renting the other. However my, wife is pregnant with our first child and will be REALLY pregnant durning the first 60 days after closing. The living levels of the dueplex are on the 2nd floor requiring my wife to climb stairs. She also has a bad knee which has not been a problem for her climbimg stairs sofar but shes been complaining of it hurting her more lately due to the additional weight she is carring(my future son).
My concern is that after we move in, if it becomes impossible for her to climb the stairs, and we have to move out, would the FHA call the loan or prosecute for fraud? Keep in mind that we are NOT positioned finacially to purchase another home. So we are not looking for additional financing like other posters are. So we are not trying dress up alterior motives here.
Im not even positive that my wifes pregnant kness will be a problem. The reason for my research is i know what my options are if we cant maintain occupancy during the first year. I live in a resort community that was just ravaged by a cat 4 hurricane so finding housing to rent would a big enough problem. I certainly dont want to add a mortgage fraud charge to it.
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Account Closed
Investor · Pacifica, CA · Member since 2014 · 3 posts · 0 votes
7y
It's funny that people here claim that your intent (what's in your head) is the life and death matter in occupancy fraud. I honestly can't see anyone getting prosecuted because of their intent. There is also no way of proving/disproving your intent.
It's actually pretty simple. If you don't move in within 60 days and live in the property for a year, you are at risk of being prosecuted for occupancy fraud. If you are prosecuted, you better have evidence or documentations to prove your situation.
However, the chance of you getting prosecuted for occupancy fraud is practically 0. If we go into another financial crisis and you default on your 7 owner-occupied mortgages, and banks lose millions of dollars on you. Then well, you are heading to the prison.
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