Ok, so you sell your multi family property to a buyer on a FHA loan. Your property is in very good shape, no peeling paint or cracked floor boards. Shouldn't be a big deal, right? Not so fast. Make sure your buyer is not an owner of other investment property, because if they are it could spell trouble.

The FHA program is mainly designed by the government to encourage home ownership of an owner occupant and a first time home buyer. They allow the program with low down payments, about 3.65%, of the purchase price, for multi-family properties, because if an owner occupant wants to buy a duplex or a fourplex, the government is ok with that. They even increase the loan limits to over $500,000 for a fourplex. This is all great, the problem comes in when a buyer owns other investment properties and then they decide they want to use an FHA loan to purchase a multi-family property and owner occupy it. The government thinks that the buyer is using this low down payment loan to add to their investment portfolio. Sure, the government would require that the buyer lives in the property for at least one year after the purchase but this type of buyer is really not the type of buyer the government is trying to help. There are other restrictions that could make the loan fall through. One such restriction is that the buyer cannot own other properties in the immediate area. If the buyer owns another duplex 3 blocks away, which is often the case, and then wants to move into another duplex and owner occupy with a FHA loan, the loan will be turned down. And often, unless the loan officer is really on their game, the seller won't find this out until very late in the transaction. The rules are extremely tight if the buyer is buying a fourplex. The underwriters will want to know why the buyer wants to live in a fourplex and into a unit which is usually smaller than the unit they are currently living in. If the buyer is moving into a duplex, it can be easier but be prepared to have to show a lot of justification for why the buyer is moving into this property from their current situation and make sure the loan officer really knows what they are doing. It isn't enough to have the buyer actually want to owner occupy the property. You will want to have a loan commitment from the buyer well in advance of making any closing preparations and maybe best to stay away from FHA loans if the buyer is already an investor.

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Beware of FHA for an investor buyer