1-4 unit residential is considered residential, 5+ residential is considered commercial. And yes FHA will finance 1-4 units as long as you will be residing in one of the units.
However with 3 & 4 unit properties, FHA requires them to be self-sufficient. This means that the maximum mortgage dollar amount is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100 percent.
So you take the net rental income is the appraiserâ€™s estimate of fair market rent from all units, including the unit you will be occupying, less the appraiserâ€™s estimate for vacancies or 15% (whichever is greater). That amount can't be less than the monthly mortgage payment (principal, interest, taxes, insurance, mortgage insurance, and HOA fees, if any).
FHA also requires 3 months PITI in reserves (cannot be gifted).
So if you take a $360k sales price, 3.5% down payment, 4.00% interest rate... payment would be about $2,600/mo. Assuming the property vacancies are low, so a 15% vacancy rate is used, you'd need all 3 units to generate $3,060/mo of income per the appraiser's market rent analysis. If the appraiser's analysis reveals only $2,600/mo from the 3 units, then the total housing expense couldn't be anymore than $2,210/mo, and a larger than 3.5% down payment (as in a ~24% down payment) would be needed. These are just hypothetical to show you a scenario.
You can read all of the fine print on those guidelines at http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr
- if you need help let me know, even though I am in California I do & I've done purchase loans in Pennsylvania as well.