Can You Rent Out an FHA Home? The Rules

An FHA loan, backed by the Federal Housing Administration, serves as a government-insured mortgage designed to make homeownership more attainable for a broad range of individuals. The primary purpose of FHA loans is to promote owner-occupancy, helping families acquire homes they intend to live in, rather than supporting investment property purchases. This focus on owner-occupancy underpins many of the specific rules governing these financial products.

FHA Primary Residency Requirement

A fundamental requirement for obtaining an FHA loan is that the property must serve as the borrower’s primary residence. FHA guidelines stipulate that at least one borrower named on the mortgage must move into the property within 60 days of the loan closing and maintain occupancy for a minimum of one year. Borrowers formally agree to this occupancy condition by signing legal documents at the time of loan origination. Failure to adhere to this primary residency stipulation without an approved exception can lead to serious repercussions, potentially including acceleration of the loan, which means the entire outstanding balance becomes immediately due.

Allowable Rental Scenarios

While FHA loans are primarily for owner-occupied homes, certain situations permit renting out the property after the initial occupancy period or due to unforeseen life changes. The core principle remains that the borrower’s original intent at the time of purchasing the home must have been to occupy it as their primary residence. Renting out an FHA-financed home immediately after closing with no prior occupancy is generally considered a violation of the loan terms.

Exceptions to the one-year occupancy rule are typically granted for legitimate, unexpected circumstances that necessitate a move. These can include a job relocation that moves the borrower a significant distance. Military deployment or transfer also constitutes a valid reason for an exception. Other qualifying events might involve divorce, where one co-borrower remains in the home, or a substantial increase in family size. After the initial one-year occupancy period has been satisfied, owners generally have the flexibility to rent out the property.

Renting Multi-Unit FHA Properties

FHA loans also offer a distinct pathway for purchasing multi-unit properties, specifically those with two to four residential units. This arrangement allows a borrower to become an owner-occupant while simultaneously generating rental income. A strict requirement is that the borrower must reside in one of the units as their primary residence.

The potential rental income from the other units can be factored into the borrower’s income for loan qualification purposes. Lenders typically consider 75% of the projected market rent for the unoccupied units, or 75% of the actual lease agreement if units are already rented, whichever is lower. The 25% reduction accounts for potential vacancies and maintenance expenses. For properties with three or four units, an additional “Self-Sufficiency Test” applies. This test requires that the net rental income from all units, after the 25% vacancy deduction, must be equal to or greater than the property’s total monthly mortgage payment, including principal, interest, taxes, and insurance (PITI). Borrowers acquiring 3-4 unit properties with FHA financing are typically required to have at least three months of PITI reserves at closing.