Renting Out a Home Purchased with an FHA Loan: Rules, Requirements, and Options for 2024

The FHA loan program offers affordable financing and more flexible credit requirements to help homebuyers purchase a primary residence. But can you use an FHA mortgage to buy an investment property that you plan to rent out?

The short answer is – not right away. FHA loans come with occupancy requirements for borrowers. However, there are still pathways to eventually rent out a property bought with FHA financing if you follow the rules.

In this comprehensive guide we’ll outline

• The occupancy rules for FHA loans
• When and how you can rent out FHA-financed properties
• Tips for managing the rental process with these loans
• Alternatives like multi-unit FHA loans

Let’s dive in and clarify exactly what renting options you have if using an FHA mortgage.

FHA Loan Occupancy and Rental Restrictions

The central condition governing FHA rentals is that you as the borrower must move into the home within 60 days and occupy it as your primary residence for at least 12 months.

This is known as the “owner occupancy requirement”. The FHA created it to avoid their government-backed loans being used for speculative real estate investments.

You agree to these occupancy terms when signing your FHA mortgage. Violating them can kill your chances of securing further FHA financing in the future.

Exactly what uses violate the FHA occupancy rules?

• Never moving into the home at all
• Moving out and renting out the property before 12 months
• Falsely claiming you’ll occupy just to qualify for FHA financing
• Renting out the home short-term (like via Airbnb) within the first year

The good news is there are still legitimate ways to rent out FHA properties. You just need to follow the rules.

When Can You Rent Out an FHA Home?

While occupancy for a year is mandatory, you do have options to rent out an FHA-financed property after meeting that requirement.

Renting After 12 Months

Once you’ve occupied the home for 1 year, you are generally free to move out and rent out the property long term.

There’s no rule against doing this. However, some lenders may discourage renting too soon after occupancy as it could appear speculative on their part. Consider waiting at least 18-24 months if possible.

Renting Out Rooms

For multi-unit FHA loans, you can rent out unused units immediately as long as you live in one unit as your primary home. More on this option later.

Special Circumstances

In certain situations, like a job relocation, you may qualify to rent out the property early if you meet strict hardship requirements. But it’s rare to get FHA approval here.

The key is you must always follow the FHA lender guidelines and get their approval in writing for any rentals. Don’t assume you can rent just because the year is up.

Tips for Renting Out an FHA Property

If renting out an FHA home after occupancy, keep these tips in mind:

• Consult your loan officer before renting – get their guidelines and approval.
• Only rent long-term leases of at least 12 months. No short-term rentals.
• Charge fair market rental rates – not inflated prices.
• Keep the home well-maintained and in good condition.
• Keep insurance and pay property taxes and mortgage payments on time.
• Refinancing to a conventional loan first can remove FHA rental barriers.

Follow the rules and you can successfully rent out an FHA property. Violate them and you risk being blacklisted from using FHA financing again.

Multi-Unit FHA Loans Offer More Rental Options

For investors who want more flexibility, a multi-unit FHA loan may be the answer. With this option:

• You can purchase a 2-4 unit property with an FHA mortgage.
• You must occupy one unit as your primary residence.
• You’re allowed to immediately rent out any other units.

Multi-unit FHA loans relax occupancy rules since you still live on site. Having rental income can also help you qualify for a larger loan amount.

Just keep in mind that qualifying and managing a multi-unit FHA property takes extra planning and diligence. But done right, it provides an approved path for FHA-financed investment properties.

Weighing the Pros and Cons of FHA Investment Properties

FHA loans provide affordable low down payment financing, but the occupancy rules limit quick rental options. Before pursuing real estate investing with an FHA loan, weigh the key pros and cons:

Pros

• Low 3.5% down payments on primary residences
• Easier to qualify than conventional mortgages
• Multi-unit properties allow some immediate rentals

Cons

• 1-year occupancy requirement on standard loans
• Multi-unit loans are more complex to manage
• Requires refinancing later to remove FHA strings

While doable with proper planning, FHA loans will make renting out properties more challenging than conventional mortgages. But they offer opportunity for investors willing to follow the rules.

The Bottom Line

The FHA occupancy requirement means you can’t immediately buy and rent out a property with an FHA loan. But there are still options for eventually renting out FHA homes to tenants.

You must live in the property for at least 12 months before renting, and follow all lender guidelines. Or explore multi-unit FHA loans to have some rental income right away. With the right approach, FHA financing can facilitate real estate investments if given proper time and planning.

Frequency of Entities:

fha loans: 21
fha loan: 16
renting: 11
multi-unit: 6
occupancy: 7