FHA Guidelines

fha duplex owner occuancy length

The Federal Housing Administration (FHA) guarantees mortgages for low-income buyers. FHA is geared toward homeowners who will occupy the property, rather than investors because the agency must pay the lender if an FHA borrower defaults on his loan. Borrowers are more likely to default on non-owner- occupied investment properties, according to MSN Money, so FHA manages its risk by limiting programs to owner-occupants.

What this meant was if you purchased a duplex for more than $422,073 in Hennepin, Ramsey, Dakota, Washington, Anoka, Carver or Scott counties, and planned on using FHA to finance that purchase, you would have to come up with a down payment big enough to cover the difference between a loan amount of $407,800 and the purchase price.Last week, however, Congress changed their mind, reinstating the higher temporary loan limits. Now, if you purchase a duplex, say, in southwest Minneapolis for more than $483,604, using FHA financing, then you would have to come up with the difference for a down payment.

In plain language, what this means is that:

1.) When you move to another state and rent out both sides of the duplex, you may only use 75% of the gross rental income towards qualifying towards the new mortgage. For example, if both sides of the duplex generate a combined rental income of $1,000 per month, you may only use $750 per month to “cover” the mortgage payment with property taxes and homeowner’s insurace factored in.

2.) If your duplex has less than 30% equity when you decide to buy a new primary residence, you can’t use ANY of the rental income. You would have to prove enough income to cover both the old mortgage payment (with property taxes and homeowner’s insurance factored in) PLUS the new mortgage payment with property taxes and insurance factored in.

3.) If Number 2 above is true, you’d also have to have 6 month’s worth of BOTH mortgage payments with property taxes and homeowner’s insurance factored in in proven reserves after downpayment and closing costs for the new house are taken out. This would be in addition to any other reserves that might be required to qualify for the new mortgage.

4.) If number 2 is not true (ie you have 30% equity in the duplex when you decide to buy another home), you’d have to supply a signed lease AND either the first moth’s rent payment or security deposit for both sides of the duplex (such as a copy of the tenants’ checks and proof of deposit).

5.) The 30% equity in the duplex can be proven by an appraisal (ordered by the lender) or a Broker Price Opinion supplied by a Realtor.

Only borrowers who plan to live in the property for the majority of the calendar year may obtain an FHA loan, according to the FHA Handbook. At least one borrower signing for the loan must occupy the property for it to be considered owner-occupied. They must move in within 60 days of signing for the mortgage and continue living there for at least one year. Generally, FHA will not allow a borrower to own two principal residences, according to the FHA Handbook, even if only one of the properties is FHA-insured. This helps to prevent investors from benefiting from FHA’s programs.

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