The FHA requires that FHA borrowers certify that they will occupy the property bought with FHA financing as their primary residence. The FHA doesn’t offer loans for investors or even on second homes. It’s a program strictly to help those that need a low down payment and flexible underwriting program to buy a primary home.
But just how long do you have to live in the home when you have an FHA loan?
The FHA requires that you occupy the home within 60 days and that you live there for at least 12 months, as your primary residence.
What Happens After 12 Months?
Once you occupy the home for 12 months as your own, you may be free to rent it out or use it as a second home. What you can’t do, though, is go and buy another home with FHA financing. The FHA strictly enforces the rule that each FHA borrower has one FHA loan at a time. If you want to buy another home with FHA financing, you will have to refinance the current home with financing other than FHA financing. Only then will you be able to take out another FHA loan, but again, you will have to occupy that property as your primary residence.
The Benefit of the FHA Loan
You might think that restricting yourself to live in the same home as your primary residence for 12 months is strict, but there are benefits of this loan program:
- You only need 3.5% to put down on the home. In fact, the 3.5% of the purchase price doesn’t even have to be your own money. You can accept gift funds from family, your employer, or a charitable organization as long as you have at least a 580 credit score.
- You only need a 580 credit score to qualify for FHA financing. This is among the lowest credit score requirement out of all of the loan programs available today. This makes FHA financing a good option for first-time homebuyers or those buyers that are just getting back on their feet after a bankruptcy or foreclosure.
- You can have higher debt ratios. Conventional loans allow a housing ratio of just 28%. FHA loans, though, allow a 31% housing ratio. That means that 31% of your gross monthly income can go towards your total mortgage payment. This includes principal, interest, taxes, and insurance.
- Your total debt ratio can be between 41% and 43%. Comparing that to conventional loans that allow just a 36% total debt ratio, you have a lot more wiggle room with your other monthly debts.
FHA loans offer a great deal of flexibility. Lenders are able to write loans for what seems like risky borrowers because the FHA guarantees the loan. This means the FHA will pay the lender back a portion of the funds they lose if a borrower defaults. With that guaranty on their side, lenders are willing to write loans for borrowers with low credit scores or high debt ratios. In exchange, though, you must guarantee that you will live in the home for at least 12 months.