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When Do You Take Occupancy After an FHA Closing?

by K.C. Hernandez, studioD

The Federal Housing Administration offers programs that help qualified moderate-income borrowers purchase homes. Its mortgage insurance protects lenders against default and assists non-investors who might otherwise have trouble obtaining financing and buying homes. FHA insures loans for one- to four-unit dwellings which you must occupy as a primary residence. Because the FHA makes owner occupancy a condition, you must take occupancy soon after closing on a purchase, with only a few exceptions.

Time Frame For Move-In

The FHA defines your principal residence as the property that you occupy for "a majority of the calendar year." You must establish occupancy in a home with an FHA loan within 60 days of signing the security instrument -- a mortgage or deed of trust. The type of security instrument you sign varies by state and by lender. At least one borrower named on the security instrument must move in by the 60-day mark and live in the home continuously for at least one year to establish valid owner occupancy.

Exception for 203(k) Loans

An FHA 203(k) rehabilitation loan combines a home loan and renovation funds into a single loan. You can buy a "fixer-upper" in need of major work and wait more than 60 days to move into the home. Homes must pass 203(k) inspection requirements and be in habitable condition before you move in. The FHA allows up to six months to complete repairs, but FHA lenders may impose a shorter time frame. It also allows you to finance up to six months worth of mortgage payments. As a result, you forgo the monthly out-of-pocket expense while your home undergoes rehabilitation.

Another Exception to 60-Day Move-In

Approved nonprofit agencies and government entities can purchase homes with FHA-backed loans. Because these buyers invest in homes to re-sell or use as affordable housing, they don't have to move in. As the only investors permitted to participate in the FHA's mortgage insurance programs, namely its low down payment requirement of 3.5 percent, nonprofits must first obtain HUD approval. Local, state and federal government entities can use FHA-insured financing without prior HUD approval.

Others Excluded From Owner-Occupancy Rule

Non-occupant co-borrowers who attest on the loan application that they don't intend to live in the home after closing don't take occupancy. The FHA also permits co-signers to live elsewhere. Non-occupant co-borrowers sign the security instrument and have ownership rights, whereas co-signers take financial responsibility without ownership rights. To prevent investors from benefiting from the FHA's low down payment programs, the FHA limits each borrower to one FHA loan at a time, with few exceptions.

About the Author

K.C. Hernandez has covered real estate topics since 2009. She is a licensed real estate salesperson in San Diego since 2004. Her articles have appeared in community newspapers but her work is mostly online. Hernandez has a Bachelor of Arts in English from UCLA and works as the real estate expert for Demand Media Studios.

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