I currently have a owner occupied FHA loan, what are the penalties if I rent the home as I am unable to sale it? I have owned the home for 5 years.

Asked by Whitata, 60640 Wed Feb 23, 2011

The bank has informed me that I cannot rent it per my loan, I am unable to sell as I owe more than it is worth, what are my options if any??

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17
Philip Sencer, Agent, Chicago, IL
Wed Feb 23, 2011
Hmmm............you should not have been so honest and told the bank your plans. They are never your friend so be very careful what you ever tell them. One of my lender references is Bradley Eggers Ardain Mort who does FHA. Call and ask him 847-744-0168, but I would just go and rent it without telling them anything. As long as you are paying the mortgage, they will not know nor care. They have more important things to do. If you cannot pay and need to be a short sale then renting it and getting caught by the lender will be the least of your problems.
2 votes
Evelyn S. Fr…, Agent, Chicago, IL
Wed Feb 23, 2011
Hello Whitata,

I'm happy to see mortgage brokers/lenders chime in to answer your question. Good advise.

Your other option is to short sale, sell for less than you owe, unless you want to keep the home then renting to cover your monthly mortgage may be your best option.

If you're interested in selling please feel free to call me for a free market analysis and for more information on short sales.

Good luck!
1 vote
Chris Diamond, Mortgage Broker Or Lender, Gurnee, IL
Wed Jan 8, 2014
You can rent it as you have occupied for more than 12 months which is the occupancy requirements on a FHA loan. If you purchased it with the intent to occupy as a primary residence and then did you are fine to rent it now especially if there was a change in family circumstance such as family size increase, relocation of job, etc.

Chris Diamond
Diamond Residential Mortgage Corporation
NMLS: 771882
chris.diamond@thedrmc.com
0 votes
Noel, , Dallas, TX
Wed Jan 8, 2014
The current lender has no say as to how you now change the occupancy status of your home. Call the mortgage company back and ask the question again. If someone tells you the same thing, ask them for a copy of any document you signed that acknowledged that the lender had control over the future occupancy of your home.

Buzz Howard taught FHA underwriters for years. He is considered the guru of FHA. He actually advised that borrower do exactly what you intend to do - buy a home with cheap FHA financing, live in it (maybe fix it up a little) and then rent it out . . . going on to buy another home with FHA financing (as an owner-occupied property) which you intend to live in for a while and rent out . . . he advised to do this in perpetuity.
0 votes
danielle_pet…, , South Dakota
Wed Nov 7, 2012
Does th processor need to confirm 2 years current residence for FHA Streamline?
0 votes
Robert Lee, Agent, Arlington Heights, IL
Tue Mar 8, 2011
John nailed it! The underwriting standards 5-10 years ago would easily allowed a borrower to have two FHA loans. Times surely have changed
0 votes
The Oliver T…, Agent, Ovilla, TX
Thu Mar 3, 2011
You should be fine to go ahead and rent the property. If your looking to purchase a new home, I would recommend looking into Conv. financing. The only downside to purchasing a new home with the rental home being leased, is they have tightened up the standards for approving new loans with borrowers who have rental properties with mortgages. I would call a local mortgage broker to get all the details and see what your options are.
Have a Blessed Day!
0 votes
John Walin, Agent, Libertyville, IL
Fri Feb 25, 2011
Thanks Jason for the clarification. So having two FHA owned homes by the same owner is allowable, but rare and with the strict underwriting on a high loan to value, LTV mortgage even less likely for owner occupied to need two homes with 10% down and qualify for both.
0 votes
Jason Naill, , Chicago, IL
Fri Feb 25, 2011
Hi, John and Whitata sorry for beating a dead horse. I know your question has been answered already, but I did want to state you are allowed to have more than one F.H.A loan at a time. As long as the underwriter feels your situations merits having F.H.A loan they will allow for it. Reasons an underwriter would allow for something like this would be job transfer with reasonable commute, illness in the family, etc. Now with all of this said, it is extremely difficult to do, but it can be done. I actually just closed a client that co-signed for their daughters F.H.A loan while having an F.H.A. property aleady.

You can find this guideline in the F.H.A manual section 705 if here are any questions on this.
0 votes
John Walin, Agent, Libertyville, IL
Fri Feb 25, 2011
I think/believe that you can only have one FHA loan at a time. So if you do rent out the house you won't be able to get a FHA loan on another house until you sell this one. Am I mistaken here? FHA loans for owner occupancy and this point not answered yet.
0 votes
Chris Depaepe, , Chicago, IL
Wed Feb 23, 2011
Whitata

FHA requires that you reside in your home for a minimum of 1 year, after 1 year you are free to move from the house and rent if necessary. However since you purchased 5 years ago, you may want to read the terms of the mortgage and note which would be in your closing package. Also, if you need a real estate attorney to review to validate that you can rent please let me know and for a small fee they will review the documents to make sure you are in compliance. Another option you have is to do a short sale on the property. I have a team of experts that can help you with this. We would sit down with you and explain the benefits of a short sale for a home that is upside down. Please contact me if you would like to meet to discuss your options. There are positives and negatives to a short sale that would need to be explained in detail for you to make a decision. If the home is a financial burden you should explore your options.

Christine DePaepe -
Senior Mortgage Consultant - President's Circle
Wintrust Mortgage
1333 N. Kingsbury, Ste, 201, Chicago, IL 60642

Office: 312-462-7715 | Cell: 773-848-4144 | eFax: 312-873-3818
chrisd@wintrustmortgage.com
http://www.chrisdepaepe.com
0 votes
Matt Laricy, Agent, Chicago, IL
Wed Feb 23, 2011
I know a lot of them state you have to live there for the first year. After 5 years you should be fine to rent it out.

Matt Laricy
Americorp Real Estate
Brokers Associate, e-PRO
mlaricy@americorpre.com
708-250-2696
0 votes
Michael Cline, , Chicago, IL
Wed Feb 23, 2011
I agree with Jason. If one year has passed since you closed on the FHA loan, you should be fine. Look thru your closing documents and you'll find a document titled "Affidavit of Occupancy", or something very similar. The only way to know for sure is to read that agreement. People change their minds all the time and decide to move and still keep their existing home as a rental unit. Don't let your bank bully you around. Good luck.

Mike.
mcline@waterstonemortgage.com
0 votes
Michael Sull…, , Portland, OR
Wed Feb 23, 2011
If you used the FHA loan on it's own without down payment assistance from other programs you can certainly rent the house without penalty.
0 votes
Daniel Kenna, , 60103
Wed Feb 23, 2011
It is doubtful there is anything in your loan saying you can not rent it. As long as you bought owner occupied and moved in back when you closed. You are doing the correct thing.
0 votes
Alexander Ro…, Mortgage Broker Or Lender, Chicago, IL
Wed Feb 23, 2011
You cannot rent it while under an FHA loan. Beware of advice to do so. The federal government is beafing up to combat loan fraud and this is definitely a prime example. Call your lender and attempt to refinance out into a conventional loan.
Web Reference:  http://www.alexanderromo.com
0 votes
Jason Naill, , Chicago, IL
Wed Feb 23, 2011
The simple answer is "yes," provided that you have lived in the home as your primary residence for at least one year. The FHA takes this requirement seriously enough to do spot checks, especially in areas with high loan fraud. After that time period, you are considered to have established residency and can either sell the property or rent it out without any trouble from the FHA or your lender. Now rules change often but this is the policy as I know it.
0 votes
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