FHA Owner Occupancy Rules

FHA loans require owner occupancy for one year.

The Federal Housing Authority, or FHA, requires owners of a home secured by an FHA loan to occupy the home as their principal residence for at least one year. After one year expires, the homeowner is generally free to vacate the home and rent the home to a tenant.

Intent

When you apply for an FHA-insured mortgage loan, you have to verify on the application that you intend to occupy the home as your principal residence for at least 12 months. Additionally, you must also verify that you intend to occupy the home within at least 60 days after closing on the purchase of the home.

Definitions

A principal residence is a home that the owner occupies for the majority of a calendar year. By definition, then, a person can have only one principal residence each year. If a person spends six months and one day in one home, and the rest of the time in another home, the first home is the principal residence and the second home is a secondary residence.

Co-borrowers

Many FHA borrowers are actually co-borrowers under the mortgage loan. For example, a parent and child may co-sign on a loan, or even more common, two spouses may co-sign on the loan. The FHA does not require both borrowers to occupy the home, but instead requires that at least one of the borrowers occupy the home as his principal residence for one year. This allows family members to help each other obtain home loans without requiring them to both live in the same home.

Condominiums

Condominium and townhouse projects have an additional requirement relating to owner occupancy. Not only must the borrower intend to occupy his unit as a principal residence, but at least 50 percent of the other units must also be occupied by owners as their principal residences. This means if everybody in the complex is a rental tenant except you, then you won't qualify for an FHA loan on your unit even if you will occupy the unit as your principal residence.

Secondary Residence

In certain circumstances, the FHA will allow borrowers to obtain a second FHA loan, or an FHA loan on a secondary home. The rules for second FHA loans and FHA loans on secondary homes are very specific and generally require some type of extenuating circumstance, such as as an employer-required relocation. In these rare cases, the above requirements relating to owner occupancy may not apply.

References

• FHA Handbook: Eligibility Requirements for Principal Residence
• FHA Handbook: Eligibility Requirements for Secondary Residence
• FHA Condominium Mortgage Insurance FAQ