Buying investment properties with FHA loan.

11 Replies

If you have an FHA residential loan you need to occupy one of the units and can rent out the rest. My question is can you ever rent out all of the units or will you have to occupy at least one of them for the life of the loan? For example, I live in Pennsylvania and a residential property is 4 units or less. Lets say I bought a four unit apartment, lived in one, and rented out the other three. Now if I wanted to move out of that apartment in a year from now, would I be able to rent out that fourth unit?

You only have to live in one unit for at least a year and after that you can move out and rent the last unit. You may even be able to get another FHA loan in the future after that, especially if you can refinance the first loan at some point.

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Originally posted by @Carmen Falcone :

@Natalia Collini So if I wanted to do that, could I just not rent one unit out for a year? Or do I have to actually live there for a year? 

 You had it right in your very first sentence: "If you have an FHA residential loan you need to occupy one of the units and can rent out the rest". ie. YOU have to be the one who lives in one of your (loan) units [for at least a year]. Otherwise, it's mortgage FRAUD! All the best...

You need to live there for one year. If you finance through FHA and do not owner occupy, that qualifies as mortgage fraud.. If you are unable to live there, you should purchase with a conventional loan.

@Carmen Falcone , what everyone said about the occupancy requirement is correct. You will sign a promise at the closing table to move in, occupy as your primary, and live there for 12 months. After that you can do what you wish.

People trying to be sneaky often get away with it... their first time. The next time you apply for a mortgage (same lender or different lender, makes no difference), underwriting is going to look at the file and apply a "BS Test" to see if it looks like you did indeed live there for that year you promised to. 

No one with a track record of mortgage fraud is getting another mortgage any time soon, purchase or refinance, even if "this time I'm being honest, I promise."

Is there a limit to HOW SOON you need to occupy? I am looking at a 4 unit right now where all of the leases go at least for 7 more months. If I were to close in say 2 months, could I do a non renewal on one and move in 5 months after closing?

Thanks, Dan Dietz

@Daniel Dietz , gotta have a credible/real plan to move in within 60 days of loan funding for it to be an owner occupant mortgage. If underwriting hasn't noticed it yet, they will raise a flag as soon as they see those 4 leases. 

Check into your rights as an owner to move into the property and ask someone to leave on that basis. I obviously don't know squat about tenants rights in Reedsburg, Wisconsin, but I'm going to guess that if we can find ways around the tenants rights stuff in the Bay Area, there will also be ways around it for you in Wisconsin. :)

Great Post! I am also considering using FHA loan for my first property. However, elsewhere on the internet, I had read that you could not rent your property completely, even if you lived more than 12 months. You basically had to re-finance to conventional loan if you're looking to use the property solely for rental income.

However, it seems like what I read elsewhere may not be true after all, which is definitely a good news. 

In Wisconsin, if your tenant has a lease, you have to honor it. however, I'd suggest asking the tenants if any of them want to get out of their lease early. Maybe one of them is simply waiting till the lease ends to leave.