An FHA home, that is a home financed with a Federal Housing Administration-backed loan, can be rented out under defined circumstance. The information below explains what an FHA home loan is, when it is allowable to rent it out, important exceptions and the reason for the restriction.
What Is an FHA Loan?
Among other mandates, the Federal Housing Administration is tasked with fostering home ownership in the United States. A primary way it does this is through a government-guaranteed loan program. These FHA home loans allow individuals to purchase a home with less down and lower interest rates. Because the FHA guarantees the loans against default, lenders have less risk, so borrowing criteria and interest rates can be lower. However, the FHA pays for this guarantee program through insurance premiums folded into the FHA home loan amount paid by the homeowner. Still, even with the added insurance premium, FHA home loans are almost always more competitive than conventional loans.
Renting Your FHA Home
While the FHA home loan program offers distinct advantages to borrowers, there are restrictions. Among them, the homeowner must occupy the FHA home within 60 days of purchasing it and then must live in it for one year from the date of occupancy before renting it out.
Getting Another FHA Loan
Be aware, if you rent your FHA home, it is more difficult to get a second FHA home loan when you still have one in place. There are two exceptions to this general rule:
- Expanding Family - If your family grows beyond what your house can reasonably accommodate, you can be authorized for a second FHA home loan. You will be required to document the number of family members you have. The exception is available for blended families so that if by marriage, you gain children that exceed what your current bedroom configuration can accommodate, you will be apply to apply for a second FHA home loan.
- Extreme Commute - If you take a new job and the commute causes a hardship, you can also be exempted from the restrictions on getting a second FHA home loan. As with the Expanding Family exception, you will have to show proof that you have a job and that commuting to it is a hardship. The distance required to prove hardship varies by FHA region with local traffic conditions. You will also be expected to show the lease agreement, at least one year, on your initial FHA home.
Why the Restrictions?
The FHA home loan program is designed to help individuals purchase a home for their personal use. It is not designed to help investors get low-interest, guaranteed loans for investment property.
Some homeowners may wonder, “If I haven’t occupied my home for a year and rent it out anyway, how would I get caught?”
The FHA does spot checks regionally of properties on which it has guaranteed loans. You can jeopardize your ability to benefit from FHA programs by skirting the rules.