Pearlie Almost Lost Her Dillon, SC House and Her FHA Loan Over One Sentence
Pearlie was about to lose the house she picked out near Dillon, South Carolina, and the loan with it, because of one sentence she never read. She planned to buy it as a rental. FHA does not insure that.
Pearlie is a fictional, illustrative buyer. I use her to show a situation that comes up often: someone who already lives in a home, finds a second house, and assumes an FHA loan will let them buy it and rent it out. It will not, and the surprise tends to arrive late, after the offer is already written.
What the FHA guideline actually says
Here is the FHA guideline, word for word: "At least one Borrower must occupy the Property within 60 Days of signing the security instrument and intend to continue occupancy for at least one year. FHA will not insure more than one Property as a Principal Residence for any Borrower. Investment Properties are not eligible for FHA insurance."
That is three sentences, and each one matters to a buyer in Pearlie's position.
Three ideas packed into those sentences
First, there is a clock. The 60 Days start when the security instrument is signed. At least one borrower on the loan has to be living in the property by the end of that window.
Second, there is intent. It is not enough to move in on day 59 and leave on day 90. The guideline says the borrower must intend to continue occupancy for at least one year.
Third, there is the limit on principal residences. FHA will not insure more than one property as a principal residence for any borrower, and investment properties are not eligible at all.
Why Pearlie's plan runs into the rule
Pearlie already lives in a home. Her plan was to buy a second house and rent it out. That creates two separate problems. She would not be occupying the new house within 60 Days of signing, and a house bought to rent is an investment property, which the guideline says is not eligible for FHA insurance.
Neither problem is a matter of opinion or lender preference. It is right there in the language. That is why reading the sentence before writing the offer matters so much. Once an offer is signed, the clock and the rules are already working against you.
The listed exceptions
The guideline does list exceptions: "Exceptions exist for relocation (100+ miles), increase in family size, vacating jointly-owned property, and non-occupying co-Borrower situations."
Notice what is on that list and what is not. Renting out the second house is not one of the listed exceptions. Whether a real situation fits one of them depends on the facts, and I would never guess at that from a distance. That is a conversation to have with your loan officer before you make an offer, not after.
What you can do today
Here is the one thing I want you to take from Pearlie's story. Before you write an offer, ask your loan officer this question: "Under the FHA owner occupancy requirement, do I have to move in within 60 Days of signing, and does my situation fit that rule or one of the listed exceptions?"
Then do two more things:
Get the answer in writing, so there is no confusion later about what you were told.
Count 60 Days forward on a calendar from the expected signing date. Mark that day. If your plan does not have you living in the house by then, you have your answer early, while you still have choices.
If the plan is really a rental
If the honest plan is to buy a house purely to rent it out, FHA is the wrong tool for that job. That does not mean the plan is dead. It means we look at what fits the plan you actually have. That is what I do: I find the path.
If you are in Pearlie's spot, call me at 843-LOW-RATE and we will walk through it before you write the offer.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
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