An FHA loan is a type of mortgage insured by the Federal Housing Administration, designed primarily for residential properties. Generally, FHA loans are tailored towards helping individuals purchase single-family homes, and there are specific criteria and limitations set by the FHA that govern what types of property are eligible for an FHA loan.
Typically, FHA loans are not available for commercial properties, as they are intended to help individuals become homeowners, not to assist in buying properties used for business purposes. However, there is a bit of a gray area when it comes to mixed-use properties where the property is primarily residential but also has a commercial component.
Here are some of the nuances and considerations regarding FHA loans and commercial properties:
- Property Type Limitations: FHA loans can be used for certain types of residences including single-family homes, 2-4 unit properties, condominiums, and manufactured homes that meet specific FHA requirements. Properties that are purely commercial do not qualify for FHA loans.
- Mixed-Use Properties: In the case of mixed-use properties, you may be able to obtain an FHA loan if the commercial part of the property does not exceed certain limits. Typically, the FHA will require that the residential part of the building makes up at least 51% of the total space. Additionally, the commercial use must not affect the health and safety of the residential tenants.
- Owner-Occupancy Requirements: FHA loans have strict owner-occupancy requirements. For multi-family units, one of the units must be owner-occupied. This means that the borrower must live in one of the units as their primary residence.
- Non-Residential Use: The non-residential portion of the property should not exceed 49% of the total floor area. The FHA is primarily concerned with ensuring that their insured loans go towards residential housing, rather than business investment properties.
- Loan Limits: The FHA sets limits on how much you can borrow, which vary by county and are adjusted annually. Even if a mixed-use property is eligible, the loan amount cannot exceed these limits.
- Financial Criteria: Borrowers must meet certain financial criteria to qualify for an FHA loan, including credit score, income verification, debt-to-income ratio, and a down payment of at least 3.5%.
- FHA 203k Rehabilitation Loans: If you’re looking at a property that needs repairs or renovations, the FHA 203k program can provide funds for the rehabilitation of properties, as long as they become compliant with FHA’s health and safety standards upon completion of the renovations.
In summary, while you can’t use an FHA loan to purchase a property that is solely for commercial use, you may be able to use this type of loan for a mixed-use property where the residential component is significant and the owner-occupancy requirement is met. Always consult with a mortgage lender who specializes in FHA loans to get the most accurate and up-to-date information for your particular situation. They will help you navigate the specifics and ensure that the property you’re interested in can be financed with an FHA loan, or they’ll suggest alternative financing options for a commercial property purchase.