From time to time we get an inquiry from someone who wants to have an FHA loan on a property that they also want to have a small business run out of.
For example, someone wants to buy a home and also run a day care facility from their home.
When it comes to FHA loans, you want to be sure to follow the rules when it comes to mixed use properties — otherwise, it could pose a problem.
FHA Guidelines on Mixed-Use Properties
A mixed-use property is a property has been modified to accommodate a small business, such as
- a day care facility
- a hair care salon
- a professional service office like a medical or financial office
- a photography studio
in addition to having the residents live in the property. Anytime a property is going to be used for business and residential purposes, the appraiser must specify that the property is being used for that purpose.
Mixed-Use Properties Allowed For FHA Loans With Conditions
Mixed-used properties are allowed with the following restrictions:
- Must be single family detached owner-occupied dwelling;
- Must represent a legal, permissible use of the property under the local zoning requirements;
- Borrower must be both the owner and the operator of the business.
- Property must be primarily residential in nature;
- There may not be any structural changes that affect the marketability of the property;
- Market value of the property must be primarily a function of its residential characteristics rather than the business use of any special-use modifications that were made.
Just a couple more notes on getting an FHA loan for mixed-use properties:
- Mixed-use properties in urban areas where the business is at street level and the living quarters are either upstairs or behind the business are also acceptable. The appraisal should illustrate through use of similar and approximate comparable sales that this type of residential/business use is common to the area.
- Also eligible: condominium projects that do not have more than 20% of the floor space of the common areas devoted to commercial retail space, subject to credit policy verification that the investors will still accept this type of project.
Have more questions about mixed use properties and FHA loans? Be sure to contact one of our experts.