When Do You Take Occupancy after an FHA Closing?

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FHA requires borrowers to move in within 60 days of purchasing a home.
FHA requires borrowers to move in within 60 days of purchasing a home. (Image: Brand X Pictures/Brand X Pictures/Getty Images)

The Federal Housing Administration has realized its original goal of increasing homeownership in America, once a country of mainly renters. At the turn of the 21st century, more than 68 percent of American residents were homeowners; in 1934, when FHA was created, only four in 10 people owned their own home, according to the Department of Housing and Urban Development. FHA insurance guarantees lenders against default by borrowers. Owner-occupancy is a requirement for most FHA insurance programs.

The Basics

FHA insurance was designed to help families who intend to occupy the dwelling full time as their principal residence. FHA's most popular program, the 203(b) for single-family residences, has this requirement. A borrower who intends to occupy the home is known as an owner-occupant. FHA allows owner-occupants to qualify for the mortgage based on their own income as well as that of another person—a co-borrower—even if the co-borrower does not intend to occupy the home as her primary residence, with certain restrictions.

Time

At least one borrower signing the mortgage note and security instrument on the FHA-insured loan must take occupancy of the residence upon closing, or settlement. The FHA settlement instrument requires the borrower to "establish bona fide occupancy" within 60 days of signing. The borrower must intend to continually occupy the home for at least the majority of the first calendar year. The requirement applies to homes involved in a purchase or refinance transaction with FHA.

Exceptions

FHA makes certain exceptions for borrowers renovating their home using FHA's 203(k) rehabilitation loan. It combines an acquisition loan with a temporary construction loan that converts to a permanent loan once repairs are completed. Because this program involves making improvements to the home upon settlement and a borrower cannot occupy a home under such conditions, FHA requires the borrower to move in only after improvements are made and approved by an FHA inspector.

Considerations

To prevent investors from taking advantage of FHA's programs, FHA restricts the amount of FHA-insured mortgages a borrower can simultaneously have. Generally, it will not insure more than one loan for any borrower individually or jointly obligated on an FHA-insured loan, according to HUD Handbook 4155.1. Even if the property is the only one the owner-occupier owns, FHA may demand the loan repaid in full or the borrower relinquish ownership of the property if FHA determines the property was intended as an investment—such as a rental or immediate resale—upon acquisition.

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