FHA loan occupancy loophole?

Question

Upen Patel · Answer

@Michael Blizniak Its very simple, just ask the mortgage banker if they have any internal overlays OR do they follow what the agencies will allow. If you get a round about answer and move on to the next one.

Upen Patel · Answer

@Michael Blizniak Many a folks have tried to do what you are suggesting. Many get away and the ones who get caught get thrown into the hole. What you are suggesting is mortgage fraud and a federal crime. So stop trying to run around rules and making a hole for yourself to fall into.

@Kevin Siedlecki Rental income is most certainly counted, even for the property being purchase and has nothing to do with landlord experience. Lot of lender have internal restrictions/overlays that limit it. So go find a lender that doesn't have internal overlays.

Cosmo Iannopollo · Answer

@Michael Blizniak,

As I understand it, an FHA loan isn't really going to be affected by your downpayment. Your lender is going to look at a lot of things to determine how much they will approve you for (income, savings, current debt, etc.). For instance, I took out an FHA and was approved for $250K. I even had to dip into my IRA for the downpayment, so don't worry about that.

If you're determined to put 10% down, you may want to talk to a local loan officer at your bank to explore your options. An FHA loan will make you pay private mortgage insurance, which if you can avoid, you should.

Cosmo Iannopollo · Answer

Hey @Michael Blizniak,

Super commendable that you want to go this route. A couple of things to consider:

1) Don't mess around with trying to live somewhere on paper. It's not worth the risk, especially if your property is making a good return for you.

2) Not sure what you mean about the 10% helping you get a 4-unit, but your tenants will be paying your mortgage, so if the numbers work, I'd put in as little upfront as possible. The only thing I'd consider is if you can put down enough to avoid paying the private mortgage insurance (PMI).

3) From what I understand, banks only start to consider rental income after about two years. Still, that shouldn't really affect your FHA.

Seriously, try to live in your place. If renting out three of the units doesn't cover your mortgage then it may not be a great deal.

Kevin Siedlecki · Answer

@Michael Blizniak - A couple things. First, most banks will not count the rental income on a new purchase unless you have history being a landlord. I'm sure there is an exception, but you will have to call around to find it. Just know that and prepare for that going in.

If you're going to live there "on paper" you would have to make one of the units your primary address. That would mean that one of the units would have to be vacant, so you might as well live there. I don't think there is any legitimate, legal away around that. If there were, I would expect to have heard a lot about it on BP.

FHA loan occupancy loophole?

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