FHA Owner Occupancy Requirements - Less than One Year
Rental Property Investor · Milwaukee, WI · Member since 2013 · 19 posts · 4 votes
In July, I moved into a 2 family that we purchased using FHA financing. We are now interested in moving to another area of town. I know you are supposed to owner occupy FHA properties for one year, but I am having a hard time finding details about that requirement, and the potential penalties for moving out a few months early. Does anyone know what the consequences of failing to owner occupy an FHA property for one year?
@Derek Steinmetz FYI the following is straight from the 92900B that you will sign in an FHA purchase loan:
"Do not falsely certify that a property will be used for your primary residence when you are actually going to use it as a rental property"
"Penalties for Loan Fraud: Federal laws provide severe penalties for fraud, misrepresentation, or conspiracy to influence wrongly the issuance of mortgage insurance by HUD. You can be subject to a possible prison term and fine of up to $10,000 for providing false information. Additionally, you could be prohibited from obtaining a HUD-insured loan for an indefinite period."
AFFIDAVIT OF OCCUPANCY
Applicant(s) hereby certify and acknowledge that, upon taking title to the real property described above, their occupancy status will be as follows:
Primary Residence - Applicant(s)shall occupy, establish, and use the Property as Applicant(s) principal residence within 60 days after closing and shall continue to occupy the Property as Applicant(s) principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.
That should clear some things up, good luck.
I've been reading about this lately. There are similar posts on this subject so I will just regurgitate what I found. My conclusion is that your intent at the time of closing is what counts. If your intent is to swindle the system and not live in the property, then you would be falsifying a document while trying to sway the it in your favor. That would be fraud. If circumstances change after you purchase and live in it for a few months, no biggie.
What also seems to be the case is that many are still violating this clause. Did we not learn from the 2008 crash the importance of honesty? After talking with people, my ear gets filled with justifications.
From a black and white perspective, it's unlawful, licenses get revoked, and judgments are served. From a gray area standpoint, it's as bad as going 5 over the speed limit, or as bad as accepting that burned DVD copy from your buddy. And what matters more is that the lender is receiving on-time payments. I personally stand on the black and white side.I don't feed good justifying it.
To follow up with what @Josiah Halverson posted. Look in you loan packet you signed, there should be an occupancy affidavit that you signed stating you intend to OO the property for a minimum of 12 months.
Now he mentioned your "intent" and circumstances changing. To be clear circumstances are not "I want a new house", circumstances are "changing jobs more than a reasonable commuting distance away", "getting a divorce" and "increased family size". That is from the HUD guidelines.
What are the consequences, dig up the OO rider you signed and I'm sure there's a warning on it against fraud and tells you what the penalty is.
Thank you both for the feedback. I will check my loan documents tomorrow and update this thread with any interesting details. We had interned to stay in this house for one to two years, and now that is looking like it will be closer to one year in order to move to a different neighborhood for better schools. We can definitely make it through a full year here if necessary I just wasn't sure if the 1 year OO was a general guideline, or official contract provision. Also, if we close on another home before the one year mark, but spend the remaining time renovating the home, and our current property is our actual primary residence during the renovation time, that would be on the up and up, correct?
You should be fine closing on a new home prior to one year and moving after. The only thing may be that if you close on your new home OO, which I assume you will, that same OO rider likely says you will occupy within 60 days. So the timing may be a little tight.
If I were you I'd be looking to do exactly what you're mentioning though as far as buying as many OO as you can for the best terms right now while you can. Just keep all your occupancy dates on the up and up and you should be fine. Usually people get in trouble (and come her on BP to get feedback) trying to use wacky ideas of how to circumvent the OO period to just buy property cheaper.
It doesn't sound like that is your intent, but unfortunately others doing that gives the process a bad name and are the reason there are mortgage fraud investigations in the first place.
@Derek Steinmetz FYI the following is straight from the 92900B that you will sign in an FHA purchase loan:
"Do not falsely certify that a property will be used for your primary residence when you are actually going to use it as a rental property"
"Penalties for Loan Fraud: Federal laws provide severe penalties for fraud, misrepresentation, or conspiracy to influence wrongly the issuance of mortgage insurance by HUD. You can be subject to a possible prison term and fine of up to $10,000 for providing false information. Additionally, you could be prohibited from obtaining a HUD-insured loan for an indefinite period."
AFFIDAVIT OF OCCUPANCY
Applicant(s) hereby certify and acknowledge that, upon taking title to the real property described above, their occupancy status will be as follows:
Primary Residence - Applicant(s)shall occupy, establish, and use the Property as Applicant(s) principal residence within 60 days after closing and shall continue to occupy the Property as Applicant(s) principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.
That should clear some things up, good luck.
I realize this in an old thread, but I'm glad I found it this morning. I've been looking for ways to get into the real estate market in this area. So I was drinking my coffee and I had an epiphany. Instead of paying rent of this crummy apartment, buy a house, live in it for a year or two, then sell it. So I got to searching. Love bigger pockets!
@Josiah Halverson, I think it really is "black and white" a lot more than people want it to be! I realize there is lots of gray, but gray really should be the exception and not the rule.
I had a client who stunned me. Two months after he bought a home with an FHA loan I found out he wasn't living in it, and that he had never lived in it. I said "what about the owner occupancy requirement?" He said, "I intended to live in it, but I changed my mind. That rule is all about intentions, so I am fine." I was pretty dumbfounded, and haven't called him since. As an agent, I have no desire to sell him another house. The fact that this was a professedly religious person twisted my brain in knots even further. All hail King Justification! I will even go so far as to bring up the word "evil."
I have gone to lots of REIA meetings in 10 years of being in real estate and in many I learn some new "workaround." And in a vicious cycle, this simply impels the lawmakers to create a new batch of rules!
While I am not perfect, I really try to do the right thing by people and by the law. I challenge ALL BP members to regularly ask the question,"So what if I do 20% fewer deals because I refuse to exploit all the loopholes I know about????"
And then we need to say to ourselves, "I will be a person of integrity and do my best to treat people the way I want to be treated."
In "People of the Lie," the famous psychiatrist M. Scott Peck suggests that "Evil can be defined as a specific form of mental illness and should be subject to investigation like other major psychiatric disease." Wow! "Evil" as a legitimate psychiatric diagnostic category? Fascinating!
If people stopped trying to game the system, then the lawmakers wouldn't have to keep making it harder for us investors to make a buck. Don't you think it's about time to let those lawmakers go home and play with their kids?
It definitely seems that a potential $10k fine for blatant owner-occupant deception seems not to be a deterrent for some. I think this is clearly a sign of poorly developed risk-control brain centers. But I think we need to go far beyond mere "compliance out of fear." Let's all take it up a few more notches-- Take the high road. Do the right thing.
Im really curious as to wonder if the fha exceptions like re location, marriage, etc still apply even if I have an additional mortgage rider signed with my fha loan stating I reside for the life of the loan..etc. Kind of vague and i'm very confused.
I know I'm late to this thread, and while I agree with most of what @Steve Theobald said, there is one form of work-around that is mentioned in @Brandon Turner's books (The Book On Rental Properties & 7 Years to 7 Figure Wealth. I believe @Scott Trench touched on it too in his book Set For Life. It is on the White side of the Black and White spectrum. It is the option to refinance to a conventional loan. Obviously, this is only possible (in most states) if you have at least 25% equity on your property if it is a Tri or Fourplex. I believe most lenders allow 15% on a Duplex, and 5-10% on a Single Family Home. The simplest and easiest way to resolve the Owner Occuplied requirement is to live in the property for a year, but the aforementioned method is also tried and true.