Using FHA for Creative Financing

[Nnabuenyi Anigbogu]

Hi All,

I have a plan/strategy that i am considering and i want a quick critique to make sure that none of it is fraud and that it is possible.

My fiancee and i currently own (since may) a four unit building that we owner occupy (under both of our names with conventional loan) and i own an FHA condo that im selling (only in my name and is to close escrow in 2 weeks).

I want my fiancee to purchase an FHA financed 2-4 unit by January of next year and move into it. Since i will still live in the four unit it will be still owner occupied so no breaking of the one year OO rule. We dont mind living apart for a few months (it will be within a 5-10 min drive anyways and i can see her everyday). After we get married in April she can then move back in with me or i with here. Marriage (expanding family) is one of the exceptions i found that allows you to move out of a FHA financed building before one year. Once May hits i would have had one year in my four unit and will buy another FHA or conventional financed building under my name alone.

I dont see an illegalities in doing this since i will still be fulfilling all the OO rules for each mortgage. The only place where we wont have a year of OO would be her FHA building but we will have a legal out due to her getting married.

Please let me know your thoughts

[Brian Gibbons]

@Nnabuenyi Anigbogu

FHA Loans and Owner Occupancy

There are often questions potential borrowers have regarding FHA loan requirements for occupancy; some borrowers may wish to purchase a home with the idea they will become landlords of that property.

FHA regulations for single-family homes to be purchased with an FHA mortgage have occupancy requirements that prevent this.

FHA loan rules state the borrower applying for a new purchase single family residence must use that residence as the primary occupant or as the "primary residence". But what does the FHA consider a "principal residence" or "primary residence"? Can the FHA approve a second FHA mortgage for those who purchase single-family, owner-occupied property?

The FHA loan rules found in a document known as HUD 4155.1 provide the answer, in the section titled "FHA-Insured Mortgages on Principal Residences and Investment Properties". What follows is the FHA rules for these issues:

"To prevent circumvention of the restrictions on making FHA-insured mortgages to investors, FHA generally will not insure more than one principal residence mortgage for any borrower."

The short answer to these types of FHA loan questions regarding occupancy and renting out the property? If you want to buy a home, the FHA expects you to use it as YOUR home.

Additionally, "FHA will not insure a mortgage if it is determined that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance."

To further clarify this issue, FHA loan rules also add, "Any person individually or jointly owning a home covered by an FHA- insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations as described in HUD 4155.1 4.B.2.d." Those types of circumstances should be discussed with an FHA representative and/or your loan officer. Check with FHA if you have circumstances that might be considered eligible for an exception to these FHA loan rules.

It's important to note that borrowers who do not adhere to the FHA occupancy rules could be considered to be acting in "bad faith" on their FHA mortgage loans. Contact your loan officer or the FHA directly to learn what the consequences of acting in bad faith on an FHA loan may be in your state.