2. Eligibility Requirements for Principal Residences

Introduction

This topic contains information on eligibility requirements on principal residences, including

•	the definition of principal residence

•	the FHA requirement for establishing owner-occupancy

•	limitation on the number of FHA-insured mortgages per borrower, and

•	exceptions to the FHA policy limiting the number of mortgages per borrower.

Change Date

May 10, 2009

4155.1 4.B.2.a Definition: Principal Residence

A principal residence is a property that will be occupied by the borrower for the majority of the calendar year.

4155.1 4.B.2.b FHA Requirement for Establishing Owner-Occupancy

At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to be considered owner-occupied.

FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower's principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year.

4155.1 4.B.2.c Limitation on Number of FHA-Insured Mortgages Per Borrower

To prevent circumvention of the restrictions on FHA-insured mortgages to investors, FHA generally will not insure more than one principal residence mortgage for any borrower. FHA will not insure a mortgage if we conclude that the transaction was designed to use FHA mortgage insurance as a vehicle for obtaining investment properties, even if the property to be insured will be the only one owned using FHA mortgage insurance

Any person individually or jointly owning a home covered by an FHA-insured mortgage in which ownership is maintained may not purchase another principal residence with FHA insurance, except in certain situations as described in HUD 4155.1 4.B.2.d.

Exception: Properties previously acquired as investment properties are not subject to these restrictions.

4155.1 4.B.2.d Exceptions to the FHA Policy Limiting the Number of Mortgages Per Borrower

The table below describes the “exception” situations in which FHA does not object to borrowers obtaining FHA mortgage insurance more than once.

Note: Considerations in determining the eligibility of a borrower for one of the exceptions in the table below include the

•	length of time the previous property was owned by the borrower, and

•	circumstances that compel the borrower to purchase another residence with an FHA-insured mortgage.

Important: In all cases other than those listed below, the borrower is not eligible to acquire another FHA-insured mortgage until he/she has either

•	paid off the FHA-insured mortgage on the previous residence, or

•	terminated ownership of that residence.

Policy Exception	Eligibility Requirements
Relocation	A borrower may be eligible to obtain another mortgage using FHA insurance, without being required to sell an existing property covered by an FHA-insured mortgage, if the borrower is
	•	relocating, and
	•	establishing residency in an area not within reasonable commuting distance from the current principal residence.
	If the borrower subsequently returns to the area where he/she owns a property with an FHA-insured mortgage, he/she is not required to re-establish primary residency in that property in order to be eligible for another FHA-insured mortgage. Note: The relocation need not be employer mandated to qualify for this exception.
Increase in family size	A borrower may be eligible for another home with an FHA-insured mortgage if the number of legal dependents increases to the point that the present house no longer meets the family's needs. The borrower must
	•	provide satisfactory evidence of the increase in dependents and the property's failure to meet family needs, and
	•	pay down the outstanding mortgage balance on the present property to a 75 percent or lower loan-to-value (LTV) ratio.
	Note: A current residential appraisal must be used to determine LTV compliance. Tax assessments and market analyses by real estate brokers are not acceptable proof of LTV compliance.
Vacating a jointly owned property	A borrower may be eligible for another FHA-insured mortgage if the borrower is vacating a residence that will remain occupied by a coborrower. Example: An example of an acceptable situation is one in which there is a divorce and the vacating ex-spouse will purchase a new home.
Non-occupying coborrower	A borrower may be qualified for an FHA-insured mortgage on his/her own principal residence even if he/she is a non-occupying coborrower with a joint interest in a property being purchased by other family members as a principal residence with an FHAinsured mortgage

Important: Under no circumstances may investors use the exceptions described in the table above to circumvent FHA's ban on loans to private investors and acquire rental properties through purportedly purchasing “principal residences.”.