Pre-Approved to use FHA as Non-Owner Occupied!

14 Replies

I’m not sure if this has been posted here before, but wanted to briefly share this information we found out regarding FHA. As a military member we have exceptions to the normal occupancy rule. Check it out: “FHA loans, similar to VA mortgages, have an occupancy requirement. For some military borrowers this may seem like an issue, but HUD 4000.1 specifically addresses military borrowers and the occupancy issue. There are exceptions for military members who qualify, according to HUD 4000.1 page 128: Borrowers who are military personnel, who cannot physically reside in a Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a Family Member of the Borrower will occupy the subject Property as their Principal Residence, or the Borrower intends to occupy the subject Property upon discharge from military service.” So as long as you “intend” on living there you can use an FHA loan. We’re buying in my Home of Record state so it makes sense. Our lender did not know off-hand when we asked regarding this. He had to talk to his management and get back to us, and when he did he gave us our pre-approval letter to use FHA. 3.5% down, whoop! Hope this helps other folks, we’re currently serving overseas and buying in Ohio.

Hey @Cory O'Dell ,

Impressive, this the first time I've ever heard of a buyer being allowed to buy with FHA loan and not actively live in the property due to military circumstances.

Would you be able to get a VA loan later on if you start out with FHA on property #1 and then VA on property #2 1+ years later?

Originally posted by @Nathan Platter :

Hey @Cory O'Dell ,

Impressive, this the first time I've ever heard of a buyer being allowed to buy with FHA loan and not actively live in the property due to military circumstances.

Would you be able to get a VA loan later on if you start out with FHA on property #1 and then VA on property #2 1+ years later?

We have a VA loan out currently on our first house. We lived in it for about 2 years before being PCS'd overseas. As far as I know FHA is only type with that stipulation for "intent" to live there after discharge/retirement. And it was new info to us as well.

New member here (first post actually) and 21 years active duty (and counting). I bought a house using owner-occupancy VA loan even though I was overseas. I knew I was going to move in ~10 months, and where I was going to be assigned, but I didn't have orders. The underwriters just wanted something in writing that said I "intended" to occupy the house.

So what happens if you aren't able to occupy the home? Lets say you purchase a home in a state under this "intend to.." clause, but either you get orders elsewhere or life changes and you aren't moving back to that state where you bought anytime soon? Are there penalties outlined or stipulations anywhere?

And can you rent the home out while you wait to occupy? 

This seems like a gray area and could raise issues if someone digs into it. But it also sounds like an opportunity if its legit. 

Originally posted by @Sean Murphy :

So what happens if you aren't able to occupy the home? Lets say you purchase a home in a state under this "intend to.." clause, but either you get orders elsewhere or life changes and you aren't moving back to that state where you bought anytime soon? Are there penalties outlined or stipulations anywhere?

And can you rent the home out while you wait to occupy? 

This seems like a gray area and could raise issues if someone digs into it. But it also sounds like an opportunity if its legit. 

It doesn't matter if you are ultimately unable to occupy. It doesn't say "intend to occupy and then must occupy", it says "the Borrower intends to occupy the subject Property upon discharge from military service." It also reminds me of one of the BP podcasts (can't remember which one), where the guy intended to occupy and do a live-in flip using FHA, which required occupancy for one year. The rehab took longer than expected (9 months), and by then he put it back up for sale and never occupied it. It's all about intent!

If HUD cared about the details they would have included discharge from military service within a year, or within 6 months, or made stipulations about getting orders etc etc. You can't try to fill in extra stipulations when there are none IMO. Read it as its written.

BTW it's on page 133 not 128. It's under Borrower Eligibility:

(7) Military Personnel Eligibility

(a) Standard

Borrowers who are military personnel, who cannot physically reside in a Property because they are on Active Duty, are still considered owner occupants and are eligible for maximum financing if a Family Member of the Borrower will occupy the subject Property as their Principal Residence, or the Borrower intends to occupy the subject Property upon discharge from military service.

(b) Required Documentation

The Mortgagee must obtain a copy of the Borrower’s military orders evidencing the Borrower’s Active Duty status and that the duty station is more than 100 miles from the subject Property.

The Mortgagee must obtain the Borrower’s intent to occupy the subject Property upon discharge from military service, if a Family Member will not occupy the subject Property as their Principal Residence.

https://www.hud.gov/sites/documents/40001HSGH.PDF

Originally posted by @Mike Benitez :

New member here (first post actually) and 21 years active duty (and counting). I bought a house using owner-occupancy VA loan even though I was overseas. I knew I was going to move in ~10 months, and where I was going to be assigned, but I didn't have orders. The underwriters just wanted something in writing that said I "intended" to occupy the house.

Sounds like a similar example! We have a VA loan as well but we lived there two years and change before getting orders overseas.

Awesome information! Without even looking into military-specific FHA loans, I wanted to do an FHA loan with a family member occupying, but found out that this only works with SFH, and to do multi-family you have to put 25% down. Do you know if there are any issues with still getting the 3.5% FHA loan on a multi-family property that you are not going to owner-occupy (but intend to once done with military service)?

@Cory O'Dell This is great info and thanks for sharing!  I'm currently stationed in California and am looking to invest out of state in FL, which happens to be our Home of Record as well.  We definitely want to move back to FL after retirement, and will now inquire about this option when buying.  Thanks again for the great post and the actual reference!

Just to update, we're closing on our house next week with this method. The first lender we were working with had never heard of this before, and when we showed it to them, the underwriters wouldn't bite off and they didn't want to do it. Okay, I get it, it's new and abnormal. Showed the same data to the next lender and they were on board. So it may take some shopping around but it can work.

Originally posted by @Ken Sample :

Awesome information! Without even looking into military-specific FHA loans, I wanted to do an FHA loan with a family member occupying, but found out that this only works with SFH, and to do multi-family you have to put 25% down. Do you know if there are any issues with still getting the 3.5% FHA loan on a multi-family property that you are not going to owner-occupy (but intend to once done with military service)?

You're still eligible to occupy 2-4 unit properties with FHA as well as SFR, and the military eligibility provision shouldn't exclude you from that. The military portion simply says military members are eligible for "full" FHA financing as long as you intend to occupy the property upon discharge or a family member lives there, so 1-4 units shouldn't make a difference. But it could be up to the interpretation of your lender/underwriter. It's worth a shot, and don't be afraid to shop around!

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