I want to buy a 4 unit building, live in one of the units for a year, will FHA finance this? Is this considered a commercial deal?

Asked by Tramelmel, Philadelphia, PA Tue Oct 11, 2011

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, ,
Tue Oct 11, 2011
That's a good question - not sure if it has changed at some point in the past, although I know for many years it's been the 60 days/1 year guideline.

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?addr… has the fine print:

"FHA Requirement for Establishing Owner Occupancy

At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to be considered owner-occupied.

FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower's principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year."

Guess technically it's not the 1st year of the mortgage, it's a full year from when you initially occupy it, which has to be within 60 days of closing, so it's possible someone would have to remain in the home for the first year & 2 months in order to meet the occupancy requirement.
2 votes
, ,
Tue Oct 11, 2011
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 appraiser’s estimate of fair market rent from all units, including the unit you will be occupying, less the appraiser’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.
1 vote
Bruce Lang, Agent, Philadelphia, PA
Fri Oct 14, 2011
4 units should be fine. guidelines say 1-4 family. check with your lender and realtor.
1 vote
Carol Cei, Agent, Maple Glen, PA
Tue Oct 11, 2011
Hello, Powerhouse,

John Leonard is right....the zoning will determine the classification. If it is zoned commercial FHA won't touch it. Now, here is something to think about...

If you want to buy this as an investment property, and then later want to do a single family loan for yourself with FHA, you will have to refi this property and then use the FHA for personal use. You will have to pay substantial closing costs again (rolled into your loan), have an appraisal, have sufficient equity, etc. Think carefully before you use the FHA loan as it is really for owner-occupied homes.

All the best,

Carol Cei, ePRO, Realtor
ReMax Action Realty
215-358-1100x 1223
215.643.9661 DIRECT
Web Reference:  http://www.carolcei.com
1 vote
, ,
Tue Oct 11, 2011
Maybe, as long as you do not already have an FHA mortgage in the same area. There are exceptions but your question doesn’t contain enough detail. Have your Realtor refer you to the lender they trust the most and compete the prequel process with all of the support documents provided on the front end. That is the only way to know for sure, hope this helps.
1 vote
Sheri Curci, Agent, Newtown, PA
Tue Oct 11, 2011
Yepper..... even better if you live in one......

Alll the Best John + Sheri 215-757-2889
Web Reference:  http://www.homecatch.com
1 vote
Timothy Garr…, Agent, Philadelphia, PA
Tue Oct 11, 2011
Hi, Powerhouse.

Good name by the way.

Since you now know that you can get an FHA loan on a multi-family home that has 4 units or less, your next best step is to get a free pre-qualification completed by a reputable bank/lender. I can recommend a few different options, if you need them.

If you have already taken this step, your next step would be to choose a real estate agent to help you find a multi-family home. As a buyer, you will not be paying your real estate agent for their services; the seller will take care of that. What you will be responsible for is choosing the right person for the job.

If you have any questions for me, please let me know. Otherwise, you can learn about my professional and educational experience by visiting my Trulia profile.

I hope to hear from you soon.


Timothy Garrity | Realtor & Consultant
Licensed Real Estate Salesperson - #RS314897
215-829-8850 Office
267-879-2716 Mobile
1 vote
John Leonard, Agent, West Chester, PA
Tue Oct 11, 2011
Hello Powerhouse,

All the answers saying "you are good" are correct. FHA will finance. Not commercial..

UNLESS: the property has commecial zoning and present commercial use.

This is a great wealth building stragegy. It can only be "undone" if you do not live there. If you are not presently working with an agent, conatact one with strong financial and investment property exeperience. I am one, sounds like we have company on this page too.

John Leonard
Long & Foster Real Estate
1 vote
, ,
Tue Oct 11, 2011
Hello Powerhouse,

Yes it is an FHA. You must occupy within 60 days unless it is a 203k then you have up to 60 days after the work is completed if the nature of the rehab prevents immediate occupany.
Also ( for Anthony) If you want to get another FHA loan afterward you have to show 25% equity in the property you are moving out of if you are not selling it( in order to prevent "Buy and bail" on the intiial residence

1 vote
R. Eric Axel…, Agent, Cherry Hill, NJ
Tue Oct 11, 2011
Hi Powerhouse,

Shane's advice appears to be spot-on. If you have a building in mind or would like to sit down and see what's out there, please get in touch. I would be happy to help.

I am an Associate Broker with Kurfiss Sotheby's and have much FHA/investment experience.

Eric Axelson, 856.617.1212, axelson@kurfiss.com
Web Reference:  http://kurfiss.com
1 vote
Anthony Cinc…, Agent, Cape Coral, FL
Tue Oct 11, 2011
Well, I learned something new to me today. :)

Did they change the requirement or was the 3 years occupancy I was told only for if you wanted to get another FHA loan afterward?

Or was I just told Hokum ? My last mortgage broker did drop the ball in about every way possible so discovering one more would not surprise me. :)

This is one of the things I love about Trulia Q&A. I learn something new every day it seems. Whether it is after doing research to answer a question I don't think I already know the answer to or coming across an interesting question that I hadn't even considered that has already been answered, I have found that the educational opportunities here to be plentiful.

Have a great day everyone!


1 vote
, ,
Tue Oct 11, 2011
The occupancy requirement for any FHA loan, regardless of units, is within 60 days of closing and for the first year of the mortgage.
1 vote
Anthony Cinc…, Agent, Cape Coral, FL
Tue Oct 11, 2011
I believe it would be acceptable to FHA provided you lived in it for 3 years after purchase and not one. However I would double check with a mortgage broker to verify.

1 vote
Deluxe Realty, Agent, Las Vegas, NV
Fri Oct 14, 2011
Great Question Powerhouse; I believe Shane is on point. Have you any luck? Have you spoken direct with a local lender?

Mark Fleysher

0 votes
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