Does the FHA Check for Owner Occupancy?

The Federal Housing Administration (FHA) loan program aims to make homeownership more accessible, especially for first-time homebuyers or those who may not qualify for conventional loans. These loans typically feature lower down payment requirements and more flexible credit score criteria than many other mortgage products. The FHA’s mission centers on supporting stable homeownership.

FHA loans are offered by private lenders, such as banks, but are insured by the FHA. This insurance protects lenders against losses if a borrower defaults, which allows them to offer more favorable terms to a wider range of applicants. These loans come with specific requirements designed to ensure the program helps individuals secure a home.

FHA’s Owner Occupancy Requirement

A core condition for most FHA single-family loans is that the borrower must occupy the property as their primary residence. This is a non-negotiable aspect of the program, designed to promote stable homeownership and prevent the use of FHA loans for investment properties. The FHA wants to ensure its guidelines benefit individuals buying a home to live in, rather than investors seeking rental income.

The borrower is required to move into the property within 60 days of closing the loan. This initial occupancy must then be maintained for at least one year from the closing date. The owner-occupancy rule applies to all properties financed with an FHA loan, including single-family homes and multi-unit properties.

Defining Primary Residence

For FHA purposes, a “primary residence” is the borrower’s principal place of abode, where they live for the majority of the calendar year. This distinguishes it from an investment property or a second home, which are generally not eligible for standard FHA financing. The address used for tax purposes, vehicle registration, and utility bills often serves as evidence of primary residency.

In the case of multi-unit properties, such as duplexes, triplexes, or fourplexes, the FHA allows financing as long as the borrower occupies one of the units as their primary residence. The remaining units can be rented out, offering a potential income stream to the owner. This arrangement allows borrowers to become homeowners and landlords simultaneously, provided they meet the occupancy criteria for one of the units.

Borrowers cannot use an FHA loan to purchase another property if they already own an FHA-financed property that is not their current primary residence. However, exceptions exist for certain circumstances, such as job relocation over 100 miles away or an increase in family size. These exceptions require satisfactory evidence and involve specific loan-to-value requirements on the existing FHA-insured property.

Verification of Occupancy

Lenders undertake several steps to verify a borrower’s intent to occupy the property as their primary residence. One method is the borrower’s signed occupancy affidavit or certification at closing. This legally binding document attests to their intent to occupy the property, often within 60 days of closing. Misrepresenting this intent can lead to severe penalties, including legal action.

Lenders also review documents and information provided by the borrower. They check the borrower’s current address on credit reports, driver’s licenses, and employment verification. Utility bills and the borrower’s stated intent regarding their new residence are also considered to confirm primary occupancy. The property’s location relative to the borrower’s employment is another factor lenders may assess.

The FHA appraisal process also plays an indirect role in verification. The appraiser notes the property type and its apparent use, which can support or contradict claims of owner occupancy. After closing, lenders may perform post-closing reviews or physical inspections to determine occupancy status, especially if red flags arise.