Can You Rent a Home Under an FHA Mortgage?

The FHA mortgage program is intended to make it possible for those who could not otherwise qualify for a mortgage to be able to move into a home. The FHA program is not intended to be used to buy investment property in most circumstances.

Renting Until You Own

The FHA requires borrowers to sign a statement that they will move into the new home as the principal residence within 60 days of the loan's closing. This means that you are allowed to rent until closing and two months longer. Living in a rental somewhere else after this point, instead of the home you've purchased with the FHA loan, is technically a violation of the Real Estate Settlement Procedures Act. If you are repairing damage to the property or making energy efficiency improvements, you won't face civil or criminal penalties. If you rent out the house you just bought to someone else, you could face civil and criminal penalties.

Multi-Unit Housing

The FHA does let you buy a multi-unit housing block, when you plan to live in it. For example, you can buy a duplex, live in one half and rent out the other half. The FHA routinely approves loans for properties with up to four units, when the owner lives in one of them.

One Year after Living There

The FHA rules state that you must move in within 60 days of closing. The FHA also states that you must live there for at least a year. After this 12 month period, the FHA doesn't care what you do with the property as long as the mortgage payments are made. Theoretically, you could move into the home, live there twelve months and then move out to make room for a renter. If the payments are made on time and in full, the FHA doesn't care if you or renters live there. However, the FHA will come after you if your loan payments are late. The fact that the renters didn't you pay rent is irrelevant to the FHA. Potential landlords would be advised to demand one or two months rent up front to prevent missed mortgage payments in case of late rent.

After Outgrowing Your Home

The FHA realizes that many people buy a home in the hope of having a family. A starter home fits a starter family. After three children, that three-bedroom home may no longer be practical to live in. The FHA permits borrowers to qualify for a new FHA loan if they have outgrown the current one. The old home can only be rented out if there is at least 25% equity in it. If not, the old home must be sold.

When You Relocate for Work

The FHA also permits borrowers to qualify for a new FHA mortgage if they have had to move for work. The old home must be sold if the borrower has less than 25% equity. If they have 25% equity or greater, they can become long distance landlords and rent out the property. However, the FHA does not make allowances for long distance property management and will penalize the borrower if mortgage payments are late.


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