Some borrowers aren’t aware (at first) of the FHA loan rules for occupancy of the property purchased with an FHA home loan or built from the ground up using an FHA One-Time Close mortgage.
The basic rule of thumb to know is the FHA policy for occupancy which requires at least one borrower obligated on the mortgage to take up residence in the home as the “primary residence” within a “reasonable time” of loan closing, typically 60 days.
FHA Loan Occupancy Rules
Occupancy is, according to HUD 4000.1, the FHA Single-Family Lender’s Handbook, a condition of FHA loan approval. You cannot be approved for an FHA mortgage if you aren’t planning to use the home purchased with your loan as your main address.
How Will the FHA Ever Know?
It is easy to assume that your loan officer is busy and that, typically, with an FHA loan, your lender would not have time to verify occupancy in each and every case personally. And there may indeed be cases where a loan officer may have to take the borrower's word on the occupancy issue.
But there’s a catch.
Borrowers Must Agree in Writing
When you sign your FHA loan agreement, you consent, in writing and in a legally binding manner, to the terms of the occupancy in your new home.
Violating this agreement may make the borrower legally liable for breach of contract. This is not legal advice. It’s a fact you should take seriously when deciding whether to sign on the dotted line or not. And there’s another factor to keep in mind.
FHA Loan Rules In HUD 4000.1 Say Occupancy Inspections Are Possible
An FHA mortgagee letter published in late 2023 notes, “HUD requires mortgagees to perform property inspections to determine occupancy status, ascertain property condition and to maintain property preservation.”
According to HUD, property inspections ensure that the condition homes purchased with FHA mortgages “do not contribute to neighborhood blight but support vibrant communities while safeguarding the Mutual Mortgage Insurance Fund.”
There are both first-time vacant property inspections and follow-up inspections possible. Will a borrower get “caught” not using their home as the primary residence under this inspection requirement? That’s not for us to say, but it is worth remembering that the FHA does take an interest in verifying occupancy as described above.
