Problems Obtaining a Mortgage on a Duplex Due to Zoning Issues

[Robert Sexton]

I've recently had an offer excepted on a duplex in southeastern Michigan that I intended on starting my first house hack in after obtaining an FHA loan. The appraisal just came back and the underwriters refuse to approve the loan unless the property is converted to a single family home before closing.

Their reasoning is that since the property is located in a neighborhood zoned for single family homes, that if the home were to need to be rebuilt due to fire, flood, ect. that it would have to be rebuilt as a single family home.  The property is currently grandfathered in with legal but nonconforming use as 2 unit property.

Has anyone encountered a similar situation or know of any lenders who won't have an issue with this? 

[Jeff Dulla]

@Robert Sexton Yes. This can be a problem. Your property is considered to be legal “non-conforming”. The loan is doable, even with financing from Fannie/Freddie, as long as the appraiser is willing to state the following in the appraisal:

1. This is typical in the area (other multi-units that have been revised to single family zoning).

2. The fact the property is legal/non-conforming does not negatively impact marketability (value/ability to sell)

Hopefully that makes sense.